Swider ACCY 202 Test 3

Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service?

total of miles driven

A mixed cost has characteristics of both a variable and a fixed cost. T or F

true

If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $50,000 are 10,000 units. T or F

true

The absorption costing income statement does not distinguish between variable and fixed costs. T or F

true

The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called zero-based budgeting. T or F

true

The first budget to be prepared is usually the sales budget. T or F

true

The flexible budget is, in effect, a series of static budgets for different levels of activity. T or F

true

What term is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and variable factory overhead cost?

variable costing

Thompson Company manufactures and sells cookware. Because of current trends, it expects to increase sales by 15% next year. If this expected level of production and sales occurs and plant expansion is not needed, how should this increase affect next year's total amounts for the following costs.

variable costs increase fixed costs have no change mixed costs increase

Chelsa Manufacturing Co.'s static budget at 5,000 units of production includes $40,000 for direct labor and $5,000 for variable electric power. Total fixed costs are $23,000. At 8,000 units of production, a flexible budget would show

variable costs of $72,000, and $23,000 of fixed costs

Under absorption costing, the cost of finished goods includes only direct materials, direct labor, and variable factory overhead. T or F

false

Costs that remain constant in total dollar amount as the level of activity changes are called

fixed costs

The primary difference between a static budget and a flexible budget is that a static budget

is a plan for a single level of production, whereas a flexible budget can be converted to any level of production

If budgeted beginning inventory is $8,000, budgeted ending inventory is $9,400, and budgeted cost of goods sold is $10,260, budgeted production should be

$11,660

A firm operated at 90% of capacity for the past year, during which fixed costs were $420,000, variable costs were 40% of sales, and sales were $1,000,000. Operating profit was

$180,000

For February, sales revenue is $567,000; sales commissions are 5% of sales; the sales manager's salary is $91,200; advertising expenses are $80,700; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,400 plus 1/2 of 1% of sales. Total selling expenses for the month of February are

$216,825

The fixed cost per unit varies with changes in the level of activity. True or False

True

The relevant range is useful for analyzing cost behavior for management decision-making purposes. T or F

True

Strait Co. manufactures office furniture. During the most productive month of the year, 3,200 desks were manufactured at a total cost of $82,500. In the month of lowest production the company made 1,200 desks at a cost of $59,600. Using the high-low method of cost estimation, total fixed costs are

$45,860

If sales are $820,000, variable costs are 55% of sales, and operating income is $260,000, what is the contribution margin ratio?

45%

Motorcycle Manufacturers, Inc. projected sales of 78,000 machines for the year. The estimated January 1 inventory is 6,500 units, and the desired December 31 inventory is 6,000 units. What is the budgeted production (in units) for the year?

77,500

Direct materials cost that varies with the number of units produced is an example of a fixed cost of production. T or F

False

Budgets need to be fair and attainable for employees to consider the budget important in their normal daily activities. Which of the following is not considered a human behavior problem? a. allowing employees the opportunity to be a part of the budget process b. setting goals among managers that conflict with one another c. setting goals too tightly making it difficult to meet performance expectation d. allowing goals to be so low that employees develop a "spend it or lose it" attitude

a. allowing employees the opportunity to be a part of the budget process

What term is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and all factory overhead cost?

absorption costing

Under absorption costing, which of the following costs would not be included in finished goods inventory? a. variable and fixed factory overhead cost b. direct labor cost c. variable and fixed selling and administrative expenses d. direct materials cost

c. variable and fixed selling and administrative expenses

Describes the behavior of the fixed cost per unit?

decreases with increasing production

The amount of income under absorption costing will equal the amount of income under variable costing when units manufactured:

equal units sold

If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 60%. T or F

false

In variable costing, the cost of products manufactured is composed of only those manufacturing costs that increase or decrease as the volume of production rises or falls. T or F

true

The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating income is termed the contribution margin ratio. T or F

true

Variable costs are costs that vary in total in direct proportion to changes in the activity level. T or F

true

On the variable costing income statement, the figure representing the difference between manufacturing margin and contribution margin is the:

variable selling and administrative expenses