Cost Accounting Test #3

Customer Margin

sales - direct costs

Costs that can be easily traced to individual products include ______.

sales commissions warranty repair costs shipping costs

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

selling and administrative

In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the ______ budget.

selling and administrative

To reconcile ABC product margin to net income ______.

subtract overhead costs not assigned to products

Spending variance

the difference between the actual amount of the cost (expenses) and how much a cost should have been, given the actual level of activity

A company determines that the number of units sold is the cost driver for its variable selling and administrative expense budget. The product of its variable selling and administrative rate and budgeted unit sales will be ________.

total budgeted variable selling and administrative expenses

Costs of unused or idle capacity are assigned to products when using a

traditional costing system

Organization Costs and Costs of Idle Capacity in the Other category are _______________ to products or customers

unallocated

An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:

under activity-based costing some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products.

The value of the ending inventory is calculated by multiplying the number of units in ending inventory by the ________.

unit product cost

The flexible budget shows...

what should have happened at the ACTUAL level of activity

The planning budget shows...

what should have happened at the BUDGETED level of activity

Under activity-based costing, nonmanufacturing costs ______.

may be allocated to products based on cause

The amount of goods to be acquired from suppliers during the period is shown on the _______ budget. Multiple choice question.

merchandise purchases

When comparing the static planning budget to actual activity, a problem that arises when actual activity is higher than budgeted activity is that ______.

net income is higher than expected but all or most expense variances are unfavorable

If some products are overcosted and some are undercosted the errors will ______.

offset each other in cost of goods sold and inventory valuations

Usually, traditional costing ______ high-volume products and ______ low-volume products.

overcosts; undercosts

An activity-based costing system ______.

produces different numbers than a traditional system is costly to maintain requires substantial resources

In activity-based costing, ______ are different from those calculated using traditional costing.

product margins

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. Multiple choice question.

production

Labor requirements are based on ___________ not sales.

production

In activity-based costing, the process of assigning overhead costs to activity cost pools is ______ stage allocation.

first

Activity variance

The difference between a revenue or cost item in the flexible budget and the same item in the planning budget.

When calculating total direct labor cost multiply __________ by time per unit by the rate per hour.

Units to be produced

All of the following are differences between activity-based costing (ABC) and traditional absorption costing

-ABC may assign nonmanufacturing costs to products -ABC allocates all manufacturing costs to products -ABC uses many cost pools -ABC may exclude some manufacturing costs, such as organization-sustaining costs

First-stage allocation of overhead costs to each cost pool is accomplished using

-Employee interviews -Percentages

Which of the following are management reports that are normally prepared with ABC data?

-Product Profitability Report -Customer Profitability Report

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

-Production budget -Direct materials budget

Activity-based management is focused on ______.

-Reducing defects -Eliminating waste

Reasons for a change in revenue variances

-discount structure change -product mix change -change in selling price -poor accounting controls

Reasons for a change in spending variances

-input prices change -usage change -technology change

All of the following are reasons for preparing a flexible budget with multiple cost drivers

-multiple cost drivers can lead to MORE ACCURATE variances -cost formulas are likely to be more accurate -an expense may be expected to vary for more than one reason

An activity-based costing system ______.

-uses numerous overhead cost pools -may exclude some manufacturing costs from product costs

Steps for Implementing Activity-Based Costing

1. Define activities, activity cost pools, and activity measures 2. Assign overhead costs to activity cost pools 3. Calculate activity rates 4. Assign overhead costs to cost objects using the activity rates and activity measures 5. Prepare management reports

Activity Based Costing

A method of allocating overhead based on each product's use of activities in making the product.

Self-imposed budget

A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement.

Customer-level activity

Activities that relate to each customer; independent of the volume of goods and services provided to the specific customer

Activity-based costing accumulates costs for each __________.

Activity

Variances between budgets are due to a change in the level of __________.

Activity

Comparing Flexible Budget and Planning Budget

Activity Variances

batch-level activity

An activity that is performed each time a batch is handled or processed, regardless of how many units are in the batch. The amount of resources consumed depends on the number of batches run rather than on the number of units in the batch.

Product level activity

An activity that relates to specific products and typically must be carried out regardless of how many batches are run or units of product are produced and sold.

Which of the following explains why operating budgets generally span a period of one year?

Companies choose a span of one year to correspond to their fiscal years.

Activity-based costing estimates the costs of the resources consumed by _________.

Cost objects

Which of the following is deducted from the total selling and administrative expense budget to determine the cash disbursements for selling and administrative expense budget?

Depreciation

Which of the following costs would not be allocated using ABC?

Direct labor

Which of the following is an allocation base commonly used under the traditional methods for allocation of overhead costs?

Direct labor hours

Which of the following can be combined in activity-based costing?

Highly correlated activities

Fixed costs can create a ______________ effect on net operating income.

Leveraging

Which of the following is not a benefit of self-imposed budgets?

Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations.

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

Master

Which costing system does not assign selling and administrative costs to products when computing product margin?

Only traditional

Which of the following costs would not be allocated to products or customers?

Other

In a manufacturing company, which budget is used as the basis for creating the direct materials budget, the direct labor budget, and the manufacturing overhead budget?

Production budget

What number does the direct materials budget take directly from the production budget?

Required production

Comparing Actual Results and the Flexible Budget

Revenue and Spending Variances

The budgeting process begins with the preparation of the ______ budget.

Sales

Which of the following is not one of the reasons that organizations use budgets?

The budgeting process enables managers to uncover bottlenecks as they occur. - Budget planning uncovers bottlenecks BEFORE they occur

Revenue variance

The difference between the actual revenue (sales) for the period and how much the revenue should have been, given the actual level of activity. A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for the period.

Predetermined Overhead Rate

Total Manufacturing Overhead / Total Activity Level

All manufacturing costs are assigned to products in ______________ costing.

Traditional

Master budget

a set of interrelated budgets that constitutes a plan of action for a specific time period

In the second-stage allocation of overhead costs, we use ________ to assign costs to cost objects.

activity rates

Inventories EXPECTED to be paid ________(are/are not) included on the budgeted balance sheet.

are not

Because it is needed for the schedule of expected cash collections, the annual master budget file includes the ___________.

balance sheet.

Shipping orders to a grocery store would be considered a(n) ________.

batch-level activity

For a production budget, the ______ is the beginning inventory for the year.

beginning inventory for the first quarter

Activity based costing provides managers with information that affects ______.

both fixed and variable costs

Which of the following is not found in the financing section of the cash budget?

cash deficiency

ABC system may assign non-manufacturing costs to products, but only if those products _____________.

cause those costs

When creating an Excel budget and performing what-if analysis, it is generally easiest to ______.

create the budget with a budgeting assumption tab

In a direct materials budget, the desired ending raw materials inventory for the year is equal to the ________.

desired ending raw materials inventory for the last period

A revenue variance is the ______.

difference between what revenue should have been at the actual level of activity and the actual revenue

The purpose of preparing a direct materials budget is to ________.

estimate the quantity of raw materials to be purchased

A favorable activity variance may not indicate good performance because a favorable activity variance ______.

for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity

In recent years, direct labor as a percentage of total cost began declining, which caused overhead to

increase