Exam 2

6. Cost Equation - Is a mathematical equation for a straight line, to predict total cost

Total cost = total variable cost + total fixed cost or Y = vx + f Where Y = total mixed cost v = variable cost per unit of activity x = volume of activity f = fixed cost over a given period of time

Which of the following expenses would not appear in a cash budget? a. Depreciation expense b. Wages expense c. Interest expense d. Marketing expense

a. Depreciation expense

Which method is used to see if a relationship between the cost driver and total cost exists? a. Scatter plot b. Variance analysis c. Outlier d. Account analysis

a. Scatter plot

Which of the following costs are irrelevant to business decisions? a. Sunk costs b. Costs that differ between alternatives c. Variable costs d. Avoidable costs

a. Sunk costs

The income statement is part of which element of a company's master budget? a. The operating budgets b. The capital expenditures budget c. The financial budgets d. The cash budgets

a. The operating budgets

Which of the following is the starting point for the master budget? a. The sales budget b. The direct materials budget c. The production budget d. The operating expenses budget

a. The sales budget

In deciding which product lines to emphasize, Amazon.com should focus on the product line that has the highest a. contribution margin per unit of the constraining factor. b. contribution margin per unit of product. c. contribution margin ratio. d. profit per unit of product.

a. contribution margin per unit of the constraining factor

The only difference between variable costing and absorption costing lies in the treatment of a. fixed manufacturing overhead costs. b. variable manufacturing overhead costs. c. direct materials and direct labor costs. d. variable nonmanufacturing costs.

a. fixed manufacturing overhead costs.

A shift in the sales mix from a product with a high contribution margin ratio toward a product with a low contribution margin ratio will cause the breakeven point to a. increase. b. decrease. c. remain the same. d. increase or decrease, but the direction of change cannot be determined from the information given.

a. increase.

The breakeven point on a CVP graph is a. the intersection of the sales revenue line and the total expense line. b. the intersection of the fixed expense line and the total expense line. c. the intersection of the fixed expense line and the sales revenue. d. the intersection of the sales revenue line and the y-axis.

a. the intersection of the sales revenue line and the total expense line.

If a per-unit cost remains constant over a wide range of volume, the cost is most likely a... a. variable cost b. fixed cost c. mixed cost d. step cost

a. variable cost

Which of the following would generally be considered a committed fixed cost for a retailing firm? a. Cost of a trip to Cancun given to the employee who is "Employee of the Year" b. Lease payments made on the store building c. Cost of sponsoring the local golf tournament for charity d. Cost of annual sales meeting for all employees

b. Lease payments made on the store building

For a merchandising company, the Cost of Goods Sold, Inventory, and Purchases budget replaces all of the following budgets except the: a. Production budget b. Sales budget c. Direct labor budget d. Direct materials budget

b. Sales budget

If the sales price of a product increases while everything else remains the same, what happens to the breakeven point? a. The breakeven point will increase. b. The breakeven point will decrease. c. The breakeven point will remain the same. d. The effect cannot be determined without further information.

b. The breakeven point will decrease.

When choosing the high point for the high-low method, how is the high point selected? a. The point with the highest total cost is chosen. b. The point with the highest volume of activity is chosen. c. The point that has the highest cost and highest volume of activity is always chosen. d. Both the high point and the low point are selected at random.

b. The point with the highest volume of activity is chosen.

Budgets are a. required by Generally Accepted Accounting Principles (GAAP). b. future-oriented. c. only used by large corporations. d. prepared by the controller for the entire company.

b. future-oriented.

In making short-term special decisions, you should a. focus on total costs. b. separate variable from fixed costs. c. use a traditional absorption costing approach. d. focus only on quantitative factors.

b. separate variable from fixed costs.

When companies are price-setters, their products and services a. are priced by managers using a target-pricing emphasis. b. tend to be unique. c. tend to have a great many competitors. d. tend to be commodities.

b. tend to be unique.

If a company sells one unit above its breakeven sales volume, then its operating income would be equal to a. the unit selling price. b. the unit contribution margin. c. the fixed expenses. d. zero.

b. the unit contribution margin.

When making outsourcing decisions a. the manufacturing full unit cost of making the product in-house is relevant. b. the variable cost of producing the product in-house is relevant. c. avoidable fixed costs are irrelevant. d. expected use of the freed capacity is irrelevant.

b. the variable cost of producing the product in-house is relevant.

How is the unit sales volume necessary to reach a target Profit calculated? a. Target Profit / unit contribution margin b. Target Profit / contribution margin ratio c. (Fixed expenses + target Profit)/unit contribution margin d. (Fixed expenses + target Profit)/contribution margin ratio

c. (Fixed expenses + target Profit)/unit contribution margin

The number of units to be sold to reach a certain target Profit is calculated as a. target Profit / unit contribution margin. b. target Profit / contribution margin ratio. c. (fixed expenses + target Profit)/unit contribution margin. d. (fixed expenses + target Profit)/contribution margin ratio.

c. (fixed expenses + target Profit)/unit contribution margin.

The cost per unit decreases as volume increases for which of the following cost behaviors? a. Variable costs and fixed costs b. Variable costs and mixed costs c. Fixed costs and mixed costs d. Only fixed costs

c. Fixed costs and mixed costs

Which of the following budgets would ordinarily not be prepared by a service company? a. Sales budget b. Operating expense budget c. Production budget d. Budgeted income statement

c. Production budget

Which of the following statements about using regression analysis is true? a. Regression analysis always ignores outliers. b. Regression analysis uses two points of data to arrive at the cost estimate equation. c. The R-square generated by the regression analysis is a measure of how well the regression analysis cost equation fits the data. d. Regression analysis is a subjective cost estimation method.

c. The R-square generated by the regression analysis is a measure of how well the regression analysis cost equation fits the data.

Which of the following is relevant to Amazon.com's decision to accept a special order at a lower sales price from a large customer in China? a. The cost of Amazon.com's warehouses in the United States b. Amazon.com's investment in its website c. The cost of shipping the order to the customer d. Founder Jeff Bezos's salary

c. The cost of shipping the order to the customer

When deciding whether to sell as is or process a product further, managers should ignore which of the following? a. The revenue if the product is processed further b. The cost of processing further c. The costs of processing the product thus far d. The revenue if the product is sold as is

c. The costs of processing the product thus far

What is the margin of safety? a. The amount of fixed and variable costs that make up a company's total costs b. The difference between the sales price per unit and the variable cost per unit c. The excess of expected sales over breakeven sales d. The sales level at which operating income is zero

c. The excess of expected sales over breakeven sales

The following budgets are all financial budgets except for the a. combined cash budget. b. budgeted balance sheet. c. budgeted income statement. d. capital expenditures budget.

c. budgeted income statement.

When inventories decline, operating income under variable costing is a. lower than operating income under absorption costing. b. the same as operating income under absorption costing. c. higher than operating income under absorption costing.

c. higher than operating income under absorption costing.

Technology has made it easier for managers to perform all of the following tasks except a. sensitivity analyses. b. combining individual units' budgets to create the companywide budget. c. removing slack from the budget. d. preparing responsibility center performance reports that identify variances between actual and budgeted revenues and costs.

c. removing slack from the budget.

When pricing a product or service, managers must consider which of the following? a. Only variable costs b. Only period costs c. Only manufacturing costs d. All costs

d. All costs

What is the advantage of using regression analysis to determine the cost equation? a. The method is objective. b. All data points are used to calculate the equation for the cost equation. c. It will generally be more accurate than the high-low method. d. All of the above statements are true about regression analysis.

d. All of the above statements are true about regression analysis.

Amazon.com expects to receive which of the following benefits when it uses its budgeting process? a. The planning required to develop the budget helps managers foresee and avoid potential problems before they occur. b. The budget helps motivate employees to achieve Amazon.com's sales growth and cost reduction goals. c. The budget provides Amazon.com's managers with a benchmark against which to compare actual results for performance evaluation. d. All of the above.

d. All of the above.

In deciding whether to drop its electronics product line, Amazon.com would consider a. the costs it could save by discontinuing the product line. b. the revenues it would lose from discontinuing the product line. c. how discontinuing the electronics product line would affect sales of its other products, such as mp3s. d. all of the above.

d. all of the above.

When making decisions, managers should a. consider sunk costs. b. consider costs that do not differ between alternatives. c. consider only variable costs. d. consider revenues that differ between alternatives.

d. consider revenues that differ between alternatives.

Target Profit analysis is used to calculate the sales volume that is needed to a. cover all fixed expenses. b. cover all expenses. c. avoid a loss. d. earn a specific amount of net operating income.

d. earn a specific amount of net operating income.

When a company is operating at its breakeven point, a. its selling price will be equal to its variable expense per unit. b. its contribution margin will be equal to its variable expenses. c. its fixed expenses will be equal to its variable expenses. d. its total revenues will be equal to its total expenses.

d. its total revenues will be equal to its total expenses.

If the degree of operating leverage is 3, then a 2% change in the number of units sold should result in a 6% change in a. sales. b. variable expense. c. unit contribution margin. d. operating income.

d. operating income.

The usual starting point for a direct labor budget for a manufacturer is the a. direct materials budget. b. sales budget. c. cash budget. d. production budget.

d. production budget.

In the following mixed cost equation, what amount represents the total variable cost component: y = vx + f? a. y b. v c. f d. vx

d. vx