Chapter 1 -

A more traditional budget would emphasize expense categories such as salaries, office supplies, and maintenance, while an activity-based budget would emphasize activities performed. (22) A) True B) False

A

A revenue center is a organizational unit whose manager is responsible for the amount of revenues generated by the unit. (23) A) True B) False

A

A sales volume variance will be favorable when (23) A) actual units sold are greater than budgeted sales volume. B) actual units sold are less than budgeted sales volume. C) actual selling price is greater than budgeted selling price. D) actual contribution margin is greater than budgeted contribution margin.

A

A static budget is a budget prepared before the beginning of the budget period based on expected level of operations; whereas, a flexible budget is prepared after the fact based on actual operations. (23) A) True B) False

A

A top-down approach to budgeting involves little participation in the budget process by lower level managers and employees. (22) A) True B) False

A

A unit contribution margin measures (16) A) the difference between unit selling price and variable cost per unit. B) the difference between sales and cost of goods sold on a unit basis. C) the difference between unit sales and total costs per unit. D) the percentage difference between sales and cost of goods sold.

A

ABC is generally more costly to implement than traditional costing. (19) A) True B) False

A

Activity-Based Costing (ABC) is a two-stage method of cost assignment that assigns overhead costs to key activities, and then assigns those costs to products or services based on their use of those activities. (19) A) True B) False

A

Activity-based costing determines the cost of activities and traces their costs to cost objects on the basis of the cost object's utilization of units of activity. (19) A) True B) False

A

An operating budget is a prediction of expected revenues and expenses and other operating and financing transactions for a future period. (22) A) True B) False

A

An outlay cost is not relevant if it (17) A) does not differ under the decision alternatives at hand. B) is under $5,000 or if it is less than 2% of sales. C) not an opportunity cost. D) sunk.

A

Any benefit foregone as a result of rejecting one opportunity in favor of another opportunity is described as an opportunity cost of the accepted alternative. (17) A) True B) False

A

Basic cost behavior patterns include variable costs, fixed costs, mixed costs and step costs. (15) (A) True (B) False

A

Before finalizing the budget, the following two questions must be addressed: (22) 1. Is the proposed budget feasible? 2. Is the proposed budget acceptable? A) True B) False

A

Budgetary slack refers to (22) A) intentionally requesting more funds in the budget than needed. B) the time lag between budget preparation and actual operations. C) overspending the budget allowance. D) the time lag between budget discussions and actual preparation of budgets.

A

Contribution margin is the difference between total revenue and total variable costs. (16) A) True B) False

A

Cost behavior refers to the relationship between a given cost item and the quantity of its related cost driver. (15) (A) True (B) False

A

Cost-volume-profit (CVP) analysis is a technique used to examine the relationships among the total volume of an independent variable, total costs, total revenues and profits for a time period. (16) A) True B) False

A

Differential costs analysis is an approach to the analysis of relevant costs that focuses on the costs that differ under alternative actions. (17) A) True B) False

A

Fixed costs, variable costs, and revenues are all included in profitability analysis? (16) A) True B) False

A

Ideally, the price established for a transfer of goods or services between two decentralized organizational units within a company would be one that would always motivate the managers of both units to act in a way that is in the best interest of the company as a whole. (24) A) True B) False

A

In a job costing system, costs are accumulated in a separate Work-in-Process account for each job. (18) A) True B) False

A

One of the reasons for using a predetermined manufacturing overhead rate is that it smoothes out seasonal costs over the entire accounting period. (18) A) True B) False

A

Operating leverage is computed as (16) A) contribution margin divided by before-tax profit. B) contribution margin divided by net income. C) fixed costs divided by before-tax profit. D) operating income divided by total debt.

A

Outlay costs are costs that require future expenditures of cash or other resources. (17) A) True B) False

A

Parts used in manufacturing digital cameras would best be classified as what type of cost? (15) A) Variable cost B) Fixed cost C) Mixed cost D) Step cost

A

Process costing is best suited for production environments where identical units of product are produced on a continuous basis. (18) A) True B) False

A

Relevant costs are future costs that differ between competing decision alternatives. (17) A) True B) False

A

Revenues, which are inflows of resources from the sale of goods and services, are relevant to a decision only if they differ between alternatives. (17) A) True B) False

A

The balance in the Work in Process Inventory account on April 1 was $26,800, and the balance on April 30 was $22,600. Costs incurred during the month were as follows: direct materials, $41,250; direct labor, $21,300; and overhead, $32,600. What amount was transferred to the Finished Goods Inventory account for April? (18) A) $ 99,350 B) $ 4,200 C) $ 90,350 D) $121,950

A

The break-even point occurs at the unit or dollar sales volume when total revenues equal total costs. (16) A) True B) False

A

The deliberate falsification of budgets is unethical behavior and is grounds for dismissal in most organizations. (22) A) True B) False

A

The depreciation cost for a manufacturing building is an example of a committed fixed cost (15) (A) True (B) False

A

The desire of the selling and buying divisions of the same company to maximize their individual performance measures often creates transfer-price conflicts within an organization. (24) A) True B) False

A

The development of accurate cost-estimating equations requires the matching of the activity to related costs within each observation. (15) (A) True (B) False

A

The most appropriate and commonly followed sequences of preparing budget schedules is to prepare the sales budget, followed by the production budget, followed by the purchases budget. (22) A) True B) False

A

The objective of standard cost variance analysis is (23) A) to identify standard cost variances and to explain the reasons for their occurrences. B) to explore the reason or reasons for variation in sales prices of products offered in the company's main line of business. C) to identify the standard deviation in budgeted numbers over a period of time. D) to purge cost data of the effects of inflation.

A

The practical capacity for a particular production facility is best described as (19) A) the highest level of activity possible allowing for normal repairs and maintenance. B) the highest level of activity possible under any circumstance. C) the highest level of activity at which average costs are minimized. D) the level of activity that makes the most practical sense within the framework of a given situation.

A

The process of assigning cost to inventories as they are converted from raw material to finished goods is called product costing. (18) A) True B) False

A

The theory of constraints states that every process has a bottleneck and production cannot take place faster than it is processed through the bottleneck. (17) A) True B) False

A

The total contribution margin at the break-even point (16) A) equals total fixed costs. B) is zero. C) is greater than total variable costs. D) plus total fixed costs equal total revenues.

A

Which of the following departments would not be classified as a profit center? (23) A) The accounting department of a large corporation B) The automotive division of a large corporation C) The hardware department of a department store D) The men's shoe department of a department store

A

Which of the following statements concerning the minimum level approach to budgeting is true? (22) A) The minimum level approach to budgeting establishes a base amount for all budget items and requires explanation or justification for any budgeted amount above that level. B) The minimum level approach to budgeting budgets physical inputs and costs as functions of planned activity. C) The minimum level approach to budgeting budgets costs for a coming period as a dollar or percentage change from the amount budgeted or spent in some previous period. D) The minimum level approach to budgeting has been more widely used in government than in business organizations.

A

With cost-volume-profit analysis (CVP), volume refers to a single activity cost driver that is assumed to correlate with changes in revenues, costs and profits. (16) A) True B) False

A

The beginning inventory consisted of 10,000 units, 30 percent complete and the ending inventory consisted of 8,000 units, 40 percent complete. There were 22,000 units started during the period. Determine the equivalent unit of conversation in process: (18) A) 27,200 units B) 20,800 units C) 25,200 units D) 17,800 units

A Completed Units = Beginning Inventory + Started - Ending Inventory = 10,000+ 22,000 - 8000 = 24,000 units. Completed + Ending Inventory = 24,000 Units + (40%)(8,000) = 27,200 units

Changes in technology during the period of cost observations should not be a concern in estimating cost. (15) (A) True (B) False

B

Facility level activities of an organization would not include (15) A) building maintenance. B) machine set up. C) property taxes. D) the production supervisor's salary.

B

Fixed non-manufacturing costs are classified as period costs under variable costing, but not under absorption costing. A) True B) False

B

For which of the following manufactured products would job costing be more appropriate than process costing? (18) A) Paint B) Designer dresses sold to celebrities C) Chemicals D) Liquid soap

B

If products are being sold to customers A and B above costs and the company is earning a profit, then customers A and B must both be profitable. (19) A) True B) False

B

If the actual labor rate exceeds the standard labor rate and if the actual labor-hours exceed the number of hours allowed, the total labor flexible budget variance will be (23) A) favorable. B) unfavorable. C) equal to labor rate variance. D) unable to be determined.

B

In a manufacturing setting, the purchase budget is based on (22) A) the sales budget. B) the production budget. C) the manufacturing labor budget. D) the cash disbursements.

B

It is not possible to reconcile the differences between actual and budgeted net income for an entire organization with multiple responsibility centers. (23) A) True B) False

B

Number of invoices is most appropriate as a cost driver for which of the following types of activity costs? (15) A) Machining B) Purchasing C) Assembly D) Payroll

B

Relevant costs are best described as (17) A) future costs. B) future costs that differ between competing decision alternatives. C) opportunity costs. D) out-of-pocket costs.

B

Residual income is (24) A) excess income earned after budgeted income has been achieved. B) the excess of investment center income over the minimum return set by management. C) a percentage of income received by an organization for its participation in a joint venture. D) income beyond the breakeven point determined by the product's lifecycle.

B

Sunk costs are the result of past decisions; therefore, they are always relevant to future decisions. (17) A) True B) False

B

The Titanic hit an iceberg and sank. In deciding whether or not to salvage the ship, its book value is a(n) (17) A) relevant cost. B) sunk cost. C) opportunity cost. D) discretionary cost.

B

The most appropriate cost driver for the activity of cleaning (bussing) tables in a restaurant is (19) A) the number of cooks in the kitchen. B) the number of tables cleaned. C) the number of employees assigned to the job of cleaning tables. D) the amount of money deposited to the bank each day.

B

The twentieth century saw an accelerating shift from traditional manufacturing activities to production procedures requiring large investments in raw materials and labor. (19) A) True B) False

B

When goods are transferred from the factory to the finished goods warehouse, Work-In- Process is reduced and Cost of Goods Sold Expense is recorded. (18) A) True B) False

B

Which of the following is an example of a discretionary fixed cost? (15) A) Depreciation of manufacturing facilities B) Donations to charitable organizations C) Salaries of production supervisors D) Property taxes on manufacturing facilities

B

Which of the following is one of the three major components of product costs? (18) A) Research and development expenses B) Manufacturing overhead C) Marketing costs related to specific products D) Selling, general and administrative expenses

B

Which of the following results in an increase in work-in-process inventory? (18) A) Purchasing raw materials B) Using direct manufacturing labor hours C) Finishing a job in process D) Selling finished goods inventory

B

Which of the following statements concerning zero-based budgeting is true? (22) A) Zero-based budgeting specifies that every line item must be rounded to the nearest thousand dollar increment. B) Zero-based budgeting specifies that every expenditure must be justified. C) Zero-based budgeting is a variation of the incremental approach. D) Zero-based budgeting is mainly used to assess research and development departments and similar departments where the relationship between inputs and outputs is weakest.

B

Firebrick Company's budgeted sales were 10,000 units at $200 per unit. Actual sales were 2,250 units at $210 per unit. Firebrick's sales price variance was: (23) A) $34,000 (U) B) $22,500 (F) C) $90,000 (F) D) $45,000 (F)

B (Actual selling price - Budgeted selling price) x Actual sales volume ($210 - $200) x 2,250 = $22,500 (F)

E&J Auto Body Shop estimated overhead cost for the coming year will be $15,000 and 5,000 direct labor hours will be worked. The amount of overhead cost applied by E&J Auto Body Shop to one of its jobs, if the jobs required 10 direct labors hours to complete, would be (18) A) $150 B) $30 C) $50 D) $15

B Predetermined overhead rate = $15,000 / 5,000 direct labor hours = $3 per labor hour Jobs overhead applied = $3 x 10 direct labor hours = $30

The Halo Corporation has the following data for 2017: (16) Selling price per unit $5 Variable costs per unit $3 Fixed costs $10,000 Units sold 6,000 Halo's 2017 operating leverage is: A) 0.50 B) 6.00 C) 4.00 D) 1.71

B [6,000 × ($5 - $3)] = $12,000 contribution margin - $10,000 = $2,000 Profit. $12,000 / $2,000 = 6.0 Operating leverage

A segment report can be prepared (24) A) only for reporting units of an organization. B) only for divisions of an organization. C) for any part of the business for which management believes the information would be useful. D) only for strategic business segments of an organization.

C

Activity-based costing systems tend to _____________________ high-volume, low- complexity products. (19) A) undercost B) overcost C) accurately cost D) None of the above

C

Activity-based costing's primary benefit is that it provides (19) A) absolutely accurate product costing information. B) data for external financial reporting purposes. C) more precise cost data for internal decision-making purposes. D) all of the above.

C

As volume increases, average cost per unit decreases because (15) A) total fixed costs increase. B) total variable costs increase. C) total fixed costs stay the same. D) total variable costs stay the same.

C

How is depreciation on the manufacturing building and equipment classified in financial reporting? (18) A) As an irrelevant cost because it has already been incurred B) As a current expense C) As part of the cost of the products produced D) As a period cost

C

In deciding whether to sell a joint product or to process it further, any costs incurred prior to the split-off point should be (17) A) allocated by size of the product. B) allocated by weight of the product. C) considered as a sunk cost. D) subtracted from joint revenues.

C

In what way does a cost center differ from either an investment center or a profit center? (23) A) Cost centers are a much less common component of current business organizations, given the increased emphasis on value chain analysis. B) A cost center is always smaller than either an investment center or a profit center. C) A cost center recognizes neither revenues nor computes income. D) Both A and B are correct.

C

Structuring performance reports and addressing them to individuals as group members of an organization in a manner that emphasizes factors that can be controlled by them is accomplished by using which of the following? (23) A) Absorption costing B) Value chain analysis C) Responsibility accounting D) Relational concepts

C

The break-even point is (16) A) the volume of activity where all of the variable costs, but none of the fixed costs are recovered. B) where total fixed costs equal total variable costs. C) where total revenues equal total costs. D) all of the above.

C

The contribution margin is (16) A) the difference between sales price and total variable cost. B) the difference between total sales and total cost of goods sold. C) the difference between total revenue and total variable cost. D) total sales minus total cost of goods sold.

C

The cost of manufacturing equipment is recognized as an expense (18) A) when equipment depreciation is recorded. B) when inventory processing is completed and finished goods are recorded. C) when finished goods inventory is sold. D) none of the above.

C

The development of accurate cost-estimating equations requires the matching of the activity to (15) A) changes in technology and prices. B) production. C) related costs within each observation. D) all of the above.

C

When management directs attention only to those activities not proceeding according to plan, they are engaging in (22) A) activity-based management. B) organization-based management. C) Management by exception. D) just-in-time management.

C

Which of the following about the manager of a profit center is true? (23) A) Does not control revenues B) Does not control expenses C) Does not control investments D) Only controls revenues

C

Which of the following costs is best classified as fixed costs with respect to volume? (15) A) Parts used in manufacturing digital cameras B) Electricity used to heat, light, and cool a hospital C) Depreciation of a copy machine in the Human Resource Department D) Salaries of quality inspectors in a production facility

C

Which of the following costs would not be considered an order filling costs? (23) A) The cost of storing items B) The cost of packaging C) The salesperson's commission D) The cost of shipping

C

Which of the following descriptions best defines the materials quantity variance? (23) A) The difference between the static budget cost of materials used and the actual cost of materials B) The difference between the actual cost of materials and the flexible budget cost of materials C) The difference between the standard cost of actual materials used and the flexible budget cost for materials D) The variation in number of units produced and available capacity

C

Which of the following statements is true when making a decision between two alternatives? (17) A) Fixed costs are never relevant. B) Taxes are never relevant. C) Variable costs may not be relevant when the decision alternatives have the same activity levels. D) Variable costs are not relevant when the decision alternatives have different activity levels.

C

Which of the following tasks is not required when using a two-stage activity-based costing model? (19) A) Identifying activities B) Assigning costs to activities C) Determining how much direct labor each cost object consumes D) Determining the cost per unit of activity

C

Activity-based costing is a technique for more precisely measuring the cost and profitability of (19) A) products. B) customers. C) distribution channels. D) all of the above.

D

For budgets to be successful, managers should do all of the following except (22) A) encourage wide participation by all management levels. B) use budget performance reports to identify both good and poor performance. C) emphasize the importance of budgeting as a planning device to the employees. D) emphasize the importance of meeting the budget in order to receive performance raises.

D

If the International Division of Latin American Products had an investment turnover of 1.4 and a return on sales of 0.12, the return on investment would be: (24) A) 13.2% B) 26.4% C) 32.4% D) 16.8%

D

In cost estimation (15) A) care must be taken to make sure that data used in developing cost estimates are based on currently employed technology. B) changes in technology and prices make cost estimation difficult. C) only data reflecting a single price level should be used in cost estimation. D) all of the above.

D

The goal of the theory of constraints is to maximize (17) A) bottlenecks. B) product level activity. C) revenues. D) throughput.

D

This creates difficulties in cost estimations (15) A) changes in technology or prices B) identifying cost drivers C) matching activity and cost within each observation D) all of the above

D

Which of the following is an assumption used in cost-volume-profit analysis? (16) A) All costs are classified as fixed or variable. B) The total cost function is linear. C) The total revenue function is linear. D) All of the above.

D

Which of the following items must be known to calculate the standard fixed overhead rate per unit? (23) A) The actual level of activity for actual production B) The standard level of activity for normal production C) The actual direct materials used D) The budgeted standard level of activity

D

Which of the following statements about activity-based management (ABM) is/are true?(19) A) ABM is concerned with how to effectively and efficiently manage activities and processes to provide value to the final consumer. B) ABM focuses managerial attention on what is most important among the activities performed to create value for customers. C) Defining processes and identifying key activities helps management better understand the business and to evaluate whether activities performed add value to the customer. D) All of the above are true.

D

Which of the following statements regarding sales mix is true? A) A shift in the sales mix can have a significant impact on the bottom line. B) One of the limiting assumptions of the basic cost-volume-profit model is that the analysis is for a single product or the sales mix is constant. C) Sales mix analysis is important in multiple-product or service organizations. D) All of the above are true.

D

Which of the following would be classified as a variable manufacturing cost? (16) A) Depreciation B) Sales commissions C) Property taxes D) Lubricants for machinery

D