ACC 212 Final Exam

True or False? A company that uses the proration method to dispose of underapplied manufacturing overhead will always apply some of the underapplied or overapplied manufacturing overhead to work-in-process inventory.

False

True or False? According to U.S. GAAP, product costs are never assigned to inventory.

False

True or False? According to the book "The Goal" a manager of a production facility should focus on producing inventory components in the highest volume possible to decrease the cost per-unit.

False

True or False? For a manufacturer like Caterpillar, all labor costs first become part of the company's inventory.

False

True or False? If Illinois Wesleyan University decides to use activity-based costing, one disadvantage is that IWU will have to maintain two seperate cost systems.

False

True or False? If Tesla's suppliers of direct materials issue an across-the-board price decrease, this will result in an overapplied manufacturing overhead balance for Tesla.

False

True or False? Illinois State University just received its electric bill. This cost would be categorized as manufacturing overhead.

False

True or False? One advantage of using time-driving activity-based costing instead of regular activity-based costing is that with time-driven activity-based costing the company doesn't need to allocate indirect costs to cost objects.

False

True or False? Period Costs are inventoriable costs.

False

The CEO of Amazon, Andy Jassy, wants to analyze the profitability of Amazon's business divisions and product lines instead of looking at the profitability of Amazon as a whole. This type of thinking has to do with: a. Financial Accounting b. Managerial Accounting c. Tax Accounting d. none of the above

Managerial Accounting

True or False? A job cost sheet for a typical manufacturer includes the cost of direct materials used, direct labor, and manufacturing overhead applied.

True

True or False? A manufacturer just received the electric bill for its factory. This cost would be categorized as manufacturing overhead.

True

True or False? A manufacturer should never prorate overapplied manufacturing overhead to the raw materials inventory account when using the proration method.

True

True or False? A service provider might use Job-Order Costing.

True

True or False? Automation increase the relevance of activity-based costing.

True

True or False? If Tesla deliberately understated the compensation that it paid its CEO by $5 million, this would have no effect on Tesla's cost of goods sold.

True

True or False? If a manufacturer never incurred any fixed manufacturing overhead costs, then the manufacturer's operating profit would be exactly the same whether the company used absorption costing or variable costing.

True

True or False? Manufacturing overhead cannot be directly traced to the product.

True

True or False? Operating profit is higher under absorption costing (compared to what operating profit would be under variable costing) when the company produces more inventory than it sells in a given period.

True

True or False? The degree of operating leverage becomes higher as you get closer to the break-even point.

True

True or False? The problem with absorption costing is that fluctuations in a company's inventory level affect the company's profit.

True

True or False? The use of a flexible budget is most critical when there is a strong relationship between a company's costs and the activity level.

True

Which of these companies would most likely have raw materials, work-in-process, and finished goods inventory? a. a university b. a small grocery store c. a retailer like Walmart d. a company that manufactures laptops

a company that manufactures laptops

What is a mixed cost? a. a cost that includes both direct materials and direct labor b. a cost that includes either direct materials or direct labor c. a cost that has both a fixed and a variable component d. a cost that has neither a fixed nor a variable component

a cost that has both a fixed and a variable component

Which of the following statements is TRUE? a. a manufacturer should increase the work-in-process inventory account when it purchases raw materials b. a manufacturer should increase the work-in-process inventory account when it starts working on raw materials and puts them into production c. a manufacturer should assign the cost of sales commissions paid to sales staff to the work-in-process inventory account

a manufacturer should increase the work-in-process inventory account when it starts working on raw materials and puts them into production

Which cost system results in the most accurate costing for purposes of internal decision making? a. job-order costing b. process costing c. operation costing d. activity-based costing

activity-based costing

After reviewing its actual manufacturing overhead at the end of the year, Sassy Manufacturing increased its cost of goods sold account. Based on this information, what must be true? a. applied manufacturing overhead > actual manufacturing overhead b. actual manufacturing overhead > applied manufacturing overhead c. the cost of direct labor > actual manufacturing overhead d. the total prime cost > actual manufacturing overhead

actual manufacturing overhead > applied manufacturing overhead

Which of the following statements about activity-based costing is true? a. nonmanufacturing costs may be assigned to products b. some nonmanufacturing costs may be excluded from products c. multiple cost pools are used instead of a single cost pool d. all of the above e. none of the above

all of the above

Which of the following would increase a company's work-in-process inventory account? a. the company incurrs $500 of direct labor costs as workers perform work on an assembly line b. the company requisitions $500 of direct materials and puts it into production (i.e., the company begins working on the direct materials) c. the company applies $500 of manufacturing overhead to jobs d. all of the above e. none of the above

all of the above

For a manufacturer, cost of goods sold might include which of the following costs? a. raw materials used b. depreciation c. labor costs d. all of the costs above might be included in cost of goods sold e. none of the costs above will be included in cost of goods sold

all of the costs above might be included in cost of goods sold

When computing the per-unit production cost in a system of process costing, why can't you simply divide the total production cost by the total number of units? a. because that would overstate both cost of goods sold and ending inventory b. because that wouldn't allow the company to fully assign all costs c. because some units are still in process at the end of the period d. because that would violate ASU 2019-37 of U.S. GAAP

because some units are still in process at the end of the period

All of the following are disadvantages of budgeting EXCEPT: a. budgets can be inaccurate b. budgets can lead to biased forecasts c. budgets create a use-it-or-lose-it mentality d. budgets often lead to rigid decision making e. workers can become demoralized if the budget is too ambitious f. budgets need to be audited by a CPA firm

budgets need to be audited by a CPA firm

Company A and Company B each earned a profit of $1 million on $50 million in sales last year. During that same year, about 80% of Company A's costs were variable costs, while about 80% of Company B's costs were fixed. If both of these companies are going to experience a 100% increase in sales for each of the next 5 years, which of the two companies will be more profitable after 5 years. a. company A will have higher profit b. company B will have a higher profit c. company A and company B will be equally profitable d. This cannot be determined from the given information

company B will have a higher profit

What is something that causes a cost to be incurred? a. cost tally b. cost reciprocation c. cost driver d. cost object

cost driver

What term refers to something for which you can measure a cost? a. cost tally b. cost reciprocation c. cost driver d. cost object

cost object

In class, I said that activity-based costing could be used for which of the following applications? a. the growth share matrix b. black swan events c. customer profitability analysis d. all of the above e. none of the above

customer profitability analysis

Prime costs consist of what? a. direct labor and manufacturing overhead b. direct labor and direct materials c. direct materials and manufacturing overhead d. direct materials and indirect materials

direct labor and direct materials

Conversion costs consist of what? a. direct labor and manufacturing overhead b. direct labor and direct materials c. direct materials and manufacturing overhead d. direct materials and indirect materials

direct labor and manufacturing overhead

What are conversion costs? a. direct labor and direct materials b. direct materials and indirect materials c. direct materials and manufacturing overhead d. direct labor and manufacturing overhead

direct labor and manufacturing overhead

What type of cost is shown in the graph above? a. true variable cost b. step-variable cost c. fixed cost d. mixed cost

fixed cost

Which of the following statements is false? a. with variable costing, fixed MOH is expensed when incurred b. conversion costs consist of direct labor and MOH c. product costs are expensed when the product has been sold d. period costs are expensed when they are incurred e. cost of goods manufactured is the cost of goods that were finished during the period f. for a manufacturer like Tesla, cost of goods sold would be a true variable cost

for a manufacturer like Tesla, cost of goods sold would be a true variable cost

In class, we discussed how work-in-process inventory (but not finished goods inventory) for General Motors has increased significantly. What did we conclude was the likely explanation? a. decreased demand for general motors's vehicles caused inventory to pile up b. general motors experienced production problems after opening new factories in India c. general motors has encountered stiff competiton from companies like Tesla d. general motors has been unable to obtain certain components it needs to build its vehicles

general motors has been unable to obtain certain components it needs to build its vehicles

Which of the following statements is TRUE? a. if a company's sales increase by 50%, then its operating profit will increase by 50% b. if you're an investor in a company, and you expect that company to experience dramatic, never-seen-before-in-human-history sales growth, you would want the company's cost structure to consist mostle of variable costs (rather than fixed costs) c. if Company A has a higher degree of operating leverage than Company B, a 10% increase in sales for each company will result in a higher percentage increase in operating profit for Company A than it will for Company B d. all of the above

if Company A has a higher degree of operating leverage than Company B, a 10% increase in sales for each company will result in a higher percentage increase in operating profit for Company A than it will for Company B

Which of the following has increased the relevance of activity-based costing? a. increased automation b. a long-term trend of increased direct labor costs c. a long-term trend of increased direct material costs d. the Sarbanes-Oxey Act of 2002

increased automation

Assume you are analyzing the financial statements of Tesla, a manufacturer. Tesla's annual filing (10-K) shows Tesla had $2.9 billion of inventory on its balance sheet as of January 1, 2019. On December 31, 2019, Tesla's inventory balance was $3.6 billion. What effect did the change in inventory balance have on Tesla's profit? a. increased profit b. decreased profit c. no effect on profit d. this cannot be determined with this information

increased profit

Which type of cost system would a manufacturer of custom furniture most likely use? a. process costing b. job-order costing c. custom costing

job-order costing

If you were trying to implement VARIABLE COSTING at Tesla, what would it be most critical for you to do? a. make sure the sales staff are educated about the change b. make sure all fixed manufacturing overhead is assigned to inventory c. make sure that all raw materials costs are expensed immediately d. make sure variable costing is used when the company prepares its financial statements according to GAAP e. all of the above

make sure the sales staff are educated about the change

Which of the following statements about Financial Accounting and Managerial Accounting is true? a. managerial accounting is intended primarily for internal use while financial accounting is intended primarily for external use by investors and creditors b. managerial accounting is past-oriented and financial accounting is futuer-oriented c. managerial accounting was invented before financial accounting was invented

managerial accounting is intended primarily for internal use while financial accounting is intended primarily for external use by investors and creditors

If an employee spilled mayonaisse on the floor of Tesla's factory, the cost of cleaning it up would be considered which type of cost? a. direct labor b. manufacturing overhead c. direct materials d. none of the above

manufacturing overhead

If you were looking at Peloton's income statement and balance sheet, you would see all the follwing line items EXCEPT: a. cost of goods sold b. inventory c. sales revenue d. manufacturing overhead

manufacturing overhead

If you were looking at Tesla's income statement and balance sheet, you would see all of the following line items EXCEPT: a. sales revenue b. manufacturing overhead c. cost of goods sold d. inventory

manufacturing overhead

The salary of a production manager who supervises the production of bulldozers at a Caterpillar factory would be considered what type of cost? a. direct labor b. manufacturing overhead c. direct materials d. period cost

manufacturing overhead

What type of cost is shown in the graph above? a. true variable cost b. step-variable cost c. fixed cost d. mixed cost

mixed cost

For a manufacturer like Caterpillar, cost of goods sold would be which type of cost? a. true variable cost b. fixed cost c. mixed cost

mixed costs

An accountant accidentally understated a company's marketing expense by $500,000. Which of the following correctly states the effect of this error? a. cost of goods sold will be understated by $500,000 b. cost of goods manufactured will be understated by $500,000 c. both cost of goods manufactured and cost of goods sold will be understated by $500,000 d. neither cost of goods manufactured nor cost of goods sold will be affected

neither cost of goods manufactured nor cost of goods sold will be affected

When is it a good thing for the company Apple if its managers build slack into their sales budgets? a. if apple is having a great year financially b. if apple is having a bad year financially c. if apple's managers are trying to earn a bonus d. never

never

If Peloton's suppliers of direct materials issue an across-the-board price increase, what effect will this have on Peloton's manufacturing overhead? a. this will cause Peloton to have an underapplied manufacturing overhead balance b. this will cuase Peloton to have an overapplied manufacturing overhead balance c. this will cause Peloton's cost of direct labor to exceed its actual manufacturing overhead costs d. none of the above statements are true

none of the above statements are true

What does it mean if a company's manufacturing overhead is frequently overapplied or underapplied? a. the company is manipulating its costs and there is likely fraud b. the company is doing a poor job at managing its costs c. nothing; this is completely normal and to be expected

nothing; this is completely normal and to be expected

Elon Musk recently took over Twitter. If his goal is to improve employee morale, Musk should use which of the following budgeting strategies? a. continuous budgeting b. participative budgeting c. zero-based budgeting d. slack-based budgeting

participative budgeting

Assume there is an increase in the price of Peloton's raw materials, such that Peloton's variable cost per unit increases while its price and fixed costs remain the same. What effect will the higher variable cost per unit have on Peloton's break-even point? a. peloton's break-even point will increase b. peloton's break-even point will decrease c. peloton's break-even point will be unaffected

peloton's break-even point will increase

The salary of an accountant who works for Tesla would be considered which type of cost? a. direct labor b. manufacturing overhead c. direct materials d. period cost

period cost

Which budget is the budget that is prepared first, and is the budget upon which many other budgets depend? a. sales budget b. SG&A budget c. direct materials budget d. cash budget

sales budget

In class, I said which of the following things about committed fixed costs? a. Manufacturing overhead consists entirely of committed fixed costs b. companies should avoid committed fixed costs whenever possible c. committed fixed costs can result in higher tax liability, but only for firms that do a significant amount of business internationally d. some companies have been unable to close unprofitable stores because of committed fixed costs

some companies have been unable to close unprofitable stores because of committed fixed costs

What is one advantage of using time-driven activity-based costing instead of regular activity-based costing? a. the company doesn't need to interview employees b. the company doesn't need to identify the various activities that are responsible for creating indirect costs c. the company doesn't need to allocate indirect costs to cost objects d. all of the above

the company doesn't need to interview employees

Which of the following would increase a company's work-in-process inventory account? a. the company incurrs $500 of costs for labor performed by the company's attorney b. the company requisitions $500 of direct materials and puts it into production (i.e., the company begins working on the direct materials) c. the company pays a $500 bonus to its CEO d. all of the above e. none of the above

the company requisitions $500 of direct materials and puts it into production (i.e., the company begins working on the direct materials)

Cost of goods manufactured is: a. the sum of all product costs incurred during the period b. the sum of all period costs incurred during the period c. the cost of goods that were sold during the period d. the cost of goods that were finished during the period

the cost of goods that were finished during the period

Cost of goods manufactured is: a. the cost of goods that were sold during the period b. the cost of goods that where finished during the period c. the sum of all product costs incurred during the period d. the sum of all period costs incurred during the period

the cost of goods that where finished during the period

Which of the following factors did NOT play a role in the development of Managerial Accounting? a. the rise of railroads and their enormous size b. the creation of the Securities and Exchange Commisson in 1934, which required companies to follow the standards of Managerial Accounting c. the rise of factories in the industrial revolution d. James McKinsey writing a book about budgeting that encouraged managers to use accounting not just to learn what happened in the past, but to plan for the future

the creation of the Securities and Exchange Commisson in 1934, which required companies to follow the standards of Managerial Accounting

What happens to the fixed cost PER UNIT as production increases? a. the fixed cost per unit increases b. the fixed cost per unit decreases c. the fixed cost per unit stays te same d. this cannot be determined

the fixed cost per unit decreases

What happens to the fixed cost per unit as production increases? a. the fixed cost per unit increases b. the fixed cost per unit decreases c. The fixed cost per unit stays the same d. This cannot be determined

the fixed cost per unit decreases

At the end of the year, a hospital's management should compare the hospital's operating results to what in order to see if the hospital did a good job of managing its costs? a. the planning budget the hospital created at the beginning of the year b. the zero-based budget c. the flexible budget d. the production budget

the flexible budget

If Apple's fixed costs are much higher than expected, how will this affect Apple's contribution margin per unit? a. the higher fixed costs will decrease the contribution margin per unit b. the higher fixed costs will increase the contribution margin per unit c. the higher fixed costs will have no effect on the contribution margin per unit

the higher fixed costs will have no effect on the contribution margin per unit

If Apple's fixed costs are much lower than expected, how will this affect Apple's contribution margin per unit? a. the lower fixed costs will decrease the contribution margin per unit b. the lower fixed costs will increase the contribution margin per unit c. the lower fixed costs will have no effect on the contribution margin per unit

the lower fixed costs will have no effect on the contribution margin per unit

Assume that a company is trying to estimate the cost of fulfilling a customer order. The company's owner states that this cost is difficult to estimate, as processing a standard order takes about 10 minutes while processing an order for a new customer takes about 15 minutes. Furthermore, some customers make special requests for shipping and handling, resulting in an additonal 7 minutes of order processing time. What feature of time-driven activity-based costing would make it easy for the company to calculate the cost of fulfilling a customer order? a. cross-functional teams b. employee interviews c. time equations d. unlimited cost pools

time equations

What type of cost is shown in the graph above? a. true variable cost b. step-variable cost c. fixed cost d. mixed cost

true variable cost

The cost of lemons for a lemonade stand would be which type of cost? a. fixed cost b. variable cost c. mixed cost d. manufacturing overhead

variable cost

When would Caterpillar expense the cost of manufacturing a bulldozer? a. when the raw materials have been purchased b. when the raw materials have been purchased and paid for c. when the bulldozer has been manufactured d. when the bulldozer has been sold e. never

when the bulldozer has been sold

When are product costs expensed? a. when they are incurred b. when the product has been manufactured c. when the product has been sold d. none of the above

when the product has been sold

When are period costs expensed? a. when they are incurred b. when the product has been manufactured c. when the product has been sold d. none of the above

when they are incurred

Which of the following statements is TRUE? a. the degree of operating leverage becomes lower as you get closer to the break-even point b. according to U.S. GAAP, product costs are never assigned to inventory c. a company that uses a just-in-time inventory system could benefit greatly from adopting variable costing d. the margin of safety tells you the percentage by which sales would increase if the company's assumptions turn out to be correct e. with absorption costing, all costs included in manufacturing overhead are categorized as product costs f. all of the above statements are true g. none of the above statements are true

with absorption costing, all costs included in manufacturing overhead are categorized as product costs

Which of the following budgeting strategies is used to reduce costs? a. continuous budgeting b. participative budgeting c. zero-based budgeting d. slack-based budgeting

zero-based budgeting