Managerial Accounting Review

The contribution margin ratio is equal to:

(Sales − Variable expenses)/Sales.

The margin of safety percentage is computed as:

(Total sales − Break-even sales) ÷ Total sales.

Garth Corporation sells a single product. If the selling price per unit and the variable expense per unit both increase by 10% and fixed expenses do not change, then:

Contribution Margin per unit = increases Contribution margin ratio = no change Break even in units = decreases

There are two acceptable methods for closing out any balance of underapplied or overapplied manufacturing overhead. One method involves allocation of the balance among several accounts, whereas the other closes any balance directly to:

Cost of Goods Sold.

The operations of Kalispell Company resulted in overapplied manufacturing overhead for the month just completed. Which of the following journal entries can be correct if Kalispell allocates underapplied or overapplied manufacturing overhead among the Work in Process, Finished Goods, and Cost of Goods Sold?

DR: Manufacturing Overhead CR: Work in Progress Finished Goods Cost of Goods Sold

Which of the following entries would record correctly the monthly salaries earned by the top management of a manufacturing company?

DR: Salary Expense CR: Salary & Wages Payable

A proper journal entry to record issuing raw materials to be used on a job would be:

DR: Work in Process CR: Raw Materials

Which of the following entries would correctly record the application of overhead cost?

DR: Work in Progress CR: Manufacturing Overhead

Which of the following is an example of a cost that is variable with respect to the number of units produced?

Direct labor cost, where the direct labor workforce is adjusted to the actual production of the period.

Which of the following costs is classified as a prime cost?

Direct materials: yes Indirect materials: no

If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in units is:

F ÷ (P−V) Fixed expense / (selling price per unit - variable expense per unit)

Assume a company sells a single product. If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in sales dollars is:

F/[(P-V)/P]

A cost that differs from one month to another is known as a differential cost.

False

A traditional format income statement organizes costs on the basis of behavior.

False

If direct labor-hours is used as the allocation base in a job-order costing system, but overhead costs are not caused by direct-labor hours, then jobs with high direct labor requirements will tend to be undercosted relative to jobs with low direct labor requirements.

False

If two companies produce the same product and have the same total sales and same total expenses, operating leverage will be lower in the company with a higher proportion of fixed expenses in its cost structure.

False

Indirect materials are charged to specific jobs.

False

Job cost sheets are used to record the costs of preparing routine accounting reports.

False

Manufacturing overhead is overapplied if actual manufacturing overhead costs for a period are greater than the amount of manufacturing overhead cost that was charged to Work in Process.

False

Property taxes and insurance premiums paid on a factory building are examples of period costs.

False

The contribution format is widely used for preparing external financial statements.

False

The sum of all amounts transferred from the Work in Process account to the Finished Goods account represents the Cost of Goods Sold for the period.

False

The traditional format income statement provides managers with an income statement that clearly distinguishes between fixed and variable costs and therefore aids planning, control, and decision making.

False

The use of a predetermined overhead rate in a job-order cost system makes it possible to compute the total cost of a job before production is begun.

False

To facilitate decision-making, fixed expenses should be expressed on a per-unit basis.

False

When a job is completed, the goods are transferred from the production department to the finished goods warehouse and the journal entry would include a debit to Work in Process.

False

When the predetermined overhead rate is based on direct labor-hours, the amount of overhead applied to a job is proportional to the estimated amount of direct labor-hours for the job.

False

When the activity level declines within the relevant range, what should happen with respect to the following?

Fixed Cost per unit = increase Variable Cost per unit = no change

Which of the following costs, if expressed on a per unit basis, would be expected to decrease as the level of production and sales increases?

Fixed manufacturing overhead.

All other things the same, which of the following would be true of the contribution margin and variable expenses of a company with high fixed costs and low variable costs as compared to a company with low fixed costs and high variable costs?

Higher CM Lower VC

What journal entry is made in a job-order costing system when $8,000 of materials are requisitioned for general factory use instead of for use in a particular job?

Manufacturing Overhead Raw Materials

The cost of direct materials cost is classified as a:

Period cost= no Product cost = yes

The salary paid to the maintenance supervisor in a manufacturing plant is an example of

Product cost & manufacturing overhead

An example of a discretionary fixed cost would be:

Research and Development

With regard to the CVP graph, which of the following statements is not correct?

The CVP graph assumes that variable costs go down as volume goes up.

At the break-even point: Sales − Variable expenses = Fixed expenses.

True

Committed fixed costs represent organizational investments with a multi-year planning horizon that can't be significantly reduced even for short periods.

True

Cost behavior is considered linear whenever a straight line is a reasonable approximation for the relation between cost and activity.

True

Country Charm Restaurant is open 24 hours a day and always has a fire going in the fireplace in the middle of its dining area. The cost of the firewood for this fire is fixed with respect to the number of meals served at the restaurant.

True

For a given level of sales, a low contribution margin ratio will produce less net operating income than a high contribution margin ratio.

True

If the fixed expenses increase in a company, and all other factors remain unchanged, then one would expect the margin of safety to decrease.

True

If two companies have the same total sales and total expenses and make the same product, the volatility of net operating income with changes in sales will tend to be greater in the company with a higher proportion of fixed expenses in its cost structure.

True

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

True

Selling costs can be either direct or indirect costs.

True

The contribution margin is the amount remaining from sales revenues after variable expenses have been deducted.

True

The formula for computing the predetermined overhead rate is: Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base

True

The high-low method uses cost and activity data from just two periods to establish the formula for a mixed cost.

True

The margin of safety percentage is equal to the margin of safety in dollars divided by total sales in dollars.

True

The planning horizon for a committed fixed cost usually encompasses many years.

True

The potential benefit that is given up when one alternative is selected over another is called an opportunity cost.

True

Thread that is used in the production of mattresses is an indirect material that is therefore classified as manufacturing overhead.

True

Which of the following is classified as a direct labor cost?

Wages of Assembly line workers = yes Wages of A Factory Supervisor = yes

A sunk cost is:

a cost which cannot be avoided because it has already been incurred.

The degree of operating leverage can be calculated as:

contribution margin divided by net operating income

The break-even point in unit sales increases when variable expenses:

increase and the selling price remains unchanged.

Discretionary fixed costs

may be reduced for short periods of time with minimal damage to the long-run goals of the organization.

All of the following costs would be found in a company's accounting records except:

opportunity cost

Emco Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for last year, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to:

overstate the predetermined overhead rate.

If a company decreases the variable expense per unit while increasing the total fixed expenses, the total expense line relative to its previous position will:

shift upward and have a flatter slope.

Stott Company requires one full-time dock hand for every 500 packages loaded daily. The wages for these dock hands would be:

step-variable

In computing its predetermined overhead rate, Brady Company included its factory insurance cost twice. This error will result in:

the Cost of Goods Manufactured to be overstated.

Departmental overhead rates are generally preferred to plant-wide overhead rates when:

the activities of the various departments in the plant are not homogeneous.

On the Schedule of Cost of Goods Manufactured, the final Cost of Goods Manufactured figure represents:

the amount of cost of goods completed during the current year whether they were started before or during the current year.

Overapplied manufacturing overhead means that:

the applied manufacturing overhead cost was greater than the actual manufacturing overhead cost.

Break-even analysis assumes that:

the average variable expense per unit is constant.

Which of the following is NOT a correct definition of the break-even point?

the point where total profit equals total fixed expenses.

If the level of activity increases within the relevant range:

total cost will increase and fixed cost per unit will decrease

Contribution margin is the amount remaining after:

variable expenses have been deducted from sales revenue.

Contribution margin means:

what remains from total sales after deducting all variable expenses.