ACC202: Exam #2 Pt. 2

A shift in the sales mix from products with high contribution margin ratios toward products with low contribution margin ratios will raise the break-even point for the company as a whole.

True

Absorption costing treats all manufacturing costs as product costs.

True

Assuming the LIFO inventory flow assumption, when production exceeds sales for the period, absorption costing net operating income will exceed variable costing net operating income.

True

Common fixed expenses should not be allocated to business segments when performing break-even calculations and making decisions.

True

If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost should be considered a common cost.

True

If the variable expense per unit decreases, and all other factors remain the same, the contribution margin ratio will increase.

True

In a CVP graph (sometimes called a break-even chart), unit volume is represented on the horizontal (X) axis and dollars on the vertical (Y) axis.

True

In calculating cost per equivalent unit under the weighted-average method, prior period costs are combined with current period costs.

True

Job-order costing would be more likely to be used than process costing in situations where many different products or services are produced each period to customer specifications.

True

Lean production should result in reduced inventories. If lean production is successfully implemented, the difference in net operating income computed under the absorption and variable costing methods should be reduced.

True

Segment margin is sales less variable expenses less traceable fixed expenses.

True

The units in beginning work in process inventory plus the units started into production must equal the units transferred out of the department plus the units in ending work in process inventory.

True

To estimate what the profit will be at various levels of activity, multiply the number of units to be sold above or below the break-even point by the unit contribution margin.

True

Under the absorption costing method, a company can increase profits simply by increasing the number of units produced.

True

Under variable costing, all variable production costs are treated as product costs.

True

Under variable costing, only variable production costs are treated as product costs.

True

Variable costing is more compatible with cost-volume-profit analysis than is absorption costing.

True

Variable costing net operating income is usually closer to the net cash flow of a period than is absorption costing net operating income.

True

Variable manufacturing overhead costs are treated as product costs under both absorption and variable costing.

True

When expressed on a per unit basis, fixed costs can mislead decision makers into thinking of them as variable costs.

True

Which of the following is true of a company that uses absorption costing?

Unit product costs can change as a result of changes in the number of units manufactured.

Malcolm Company uses a weighted-average process costing system. All materials at Malcolm are added at the beginning of the production process. The equivalent units for materials at Malcolm would be the sum of:

Units in beginning work in process and the units started.

Under the weighted-average method, the cost of units transferred out of a department is computed as follows for a cost category:

Units transferred to the next department × Cost per equivalent unit

When sales exceed production and the company uses the LIFO inventory flow assumption, the net operating income reported under variable costing generally will be:

greater than net operating income reported under absorption costing

A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling price per unit will:

have no effect on the break-even volume

If sales volume increases and all other factors remain constant, then the:

margin of safety will increase

Allocating common fixed expenses to business segments:

may cause managers to erroneously discontinue business segments

If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in:

net operating income

If a company increases its selling price by $2 per unit due to an increase in its variable labor cost of $2 per unit, the break-even point in units will:

not change

Which of the following would not affect the break-even point?

number of units sold

When unit sales are constant, but the number of units produced fluctuates and everything else remains the same, net operating income under variable costing will:

remain constant

The impact on net operating income of a small change in sales for a segment is best predicted by using:

the contribution margin ratio

Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost with respect to the stores?

the cost of corporate advertising aired during the Super Bowl

Net operating income computed under variable costing would exceed net operating income computed using absorption costing if:

units sold exceed units produced

The costing method that treats all fixed costs as period costs is:

variable costing

Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that:

variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.

A cost that would be included in product costs under both absorption costing and variable costing is:

variable manufacturing costs

A process costing system is employed in those situations where:

where manufacturing involves a single, homogeneous product that flows evenly through the production process on a continuous basis.

Under absorption costing, a portion of fixed manufacturing overhead cost is released from inventory when production volume exceeds sales volume.

False

Under the weighted-average method, the cost of ending work in process inventory is determined by dividing the equivalent units of production for ending inventory by the cost per equivalent unit for each cost category and then summing the result.

False

Under variable costing, an increase in fixed manufacturing overhead will affect the unit product cost.

False

Under variable costing, fixed manufacturing overhead is treated as a product cost.

False

When all materials are added at the beginning of the production process, under a weighted-average process costing system the equivalent units for materials is equal to the units completed and transferred out.

False

When computing the break even for a segment, the calculations include the company's common fixed expenses.

False

When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs deferred in inventory under absorption costing should be deducted from variable costing net operating income to arrive at the absorption costing net operating income.

False

When using segmented income statements, the dollar sales for a company to break even equals the traceable fixed expenses divided by the overall CM ratio.

False

When computing the cost per equivalent unit, it is necessary to consider the percentage completion of the units in beginning inventory under the weighted-average method.

False; ENDING Inventory

Which of the following is an assumption underlying standard CVP analysis?

In multi-product companies, the sales mix is constant.

Mossfeet Shoe Corporation is a single product firm. The company is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year?

Increase Contribution Margin Ratio, Decrease Break-even Point

Assume there was no beginning work in process inventory and the ending work in process inventory is 70% complete with respect to conversion costs. Under the weighted-average method, the number of equivalent units of production with respect to conversion costs would be:

Less than the units started during the period.

Which of the following will usually be found on an income statement prepared using absorption costing?

No Contribution Margin, but Gross Margin is present

In its first year of operations, Bronfren Corporation produced 800,000 sets and sold 780,000 sets of artificial tan lines. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.)

No effect on variable costing, decrease in absorption costing

All of the following statements are correct when referring to process costing except:

Process costing would be appropriate for a jeweler who makes custom jewelry to order.

In process costing, a separate work in process account is kept for each:

Processing Department

Which of the following is true regarding the contribution margin ratio of a company that produces only a single product?

The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit.

When using data from a segmented income statement, the dollar sales for a segment to break even is equal to:

Traceable fixed expenses ÷ Segment CM ratio

A company has two divisions, each selling several products. If segment reports are prepared for each product, the division managers' salaries should be considered as common fixed costs of the products.

True

A company with high operating leverage will experience a larger reduction in net operating income in a period of declining sales than a company with low operating leverage.

True

A flour manufacturer is more likely to use process costing than job-order costing whereas a manufacturer of customized leather jackets is more likely to use job-order costing than process costing.

True

In the cost reconciliation report under the weighted-average method, the "Total cost accounted for" equals:

Cost of ending work in process inventory + Cost of units transferred out

To obtain the dollar sales volume necessary to attain a given target profit, which of the following formulas should be used?

(Fixed expenses + Target net profit)/Contribution margin ratio

How would the following costs be classified (product or period) under variable costing at a retail clothing store?

Cost of Purchasing Clothing: Product Cost Sales Commissions: Period Cost

n the cost reconciliation report under the weighted-average method, the "Costs to be accounted for" section contains which of the following items?

Cost of beginning work in process inventory

Which of the following statements is correct with regard to a CVP graph?

A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line.

Which of the following types of companies would typically use process costing rather than job-order costing?

A breakfast cereal manufacturer.

A job-order costing system would be best suited for production of a large quantity of a homogeneous product.

False

Absorption costing treats all fixed costs as product costs.

False

All other things the same, if a division's traceable fixed expenses decrease then the division's segment margin will decrease.

False

Allocating common fixed costs to segments on segmented income statements increases the usefulness of such statements.

False

In a CVP graph, the anticipated profit or loss at any given level of sales is measured by the vertical distance between the total revenue line (sales) and the total fixed expense line.

False

In a process costing system, costs are traced directly to jobs.

False

In a process costing system, manufacturing overhead cost is also called conversion cost.

False

In process costing, the equivalent units computed for materials is generally the same as that computed for conversion costs.

False

In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure.

False

Incremental analysis is an analytical approach that focuses only on those revenues and costs that will not change as a result of a decision.

False

Net operating income computed using absorption costing will always be less than net operating income computed using variable costing.

False

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

False

Process costing is employed in industries that produce basically homogeneous products such as bricks, flour, or cement but would not be appropriate for assembly-type operations such as those that manufacture computers.

False

Segmented statements for internal use should not be prepared using the contribution format.

False

The cost reconciliation report has two sections: "Costs to be accounted for" followed by "Costs accounted for". The "Costs accounted for" portion of the cost reconciliation report includes the cost of beginning work in process inventory and the cost of units transferred out.

False

The cost reconciliation report has two sections: "Costs to be accounted for" followed by "Costs accounted for". The "Costs accounted for" portion of the cost reconciliation report includes the cost of beginning work in process inventory and the costs added during the period.

False

The cost reconciliation report has two sections: "Costs to be accounted for" followed by "Costs accounted for". The "Costs accounted for" portion of the cost reconciliation report includes the cost of ending work in process inventory and the cost of beginning work in process inventory.

False

The degree of operating leverage is computed by dividing sales by the contribution margin.

False

The equivalent units in beginning work in process inventory plus the equivalent units in ending work in process inventory equals the units transferred out plus the equivalent units for the work done during the period

False

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

False

The salary paid to a store manager is not a traceable fixed expense of the store.

False

If the contribution margin is not sufficient to cover fixed expenses:

a loss occurs

Generally speaking, net operating income under variable and absorption costing will:

be equal only when production and sales are equal

When computing the cost per equivalent unit, the weighted-average method of process costing considers:

costs incurred during the current period plus cost of beginning work in process inventory.

Which of the following costs at a manufacturing company would be treated as a product cost under variable costing?

direct material cost

Hayworth Corporation has just segmented last year's income statement into its ten product lines. The chief executive officer (CEO) is curious as to what effect dropping one of the product lines at the beginning of last year would have had on overall company profit. What is the best number for the CEO to look at to determine the effect of this elimination on the net operating income of the company as a whole?

the product line's segment margin

A reason why absorption costing income statements are sometimes difficult to interpret is that:

they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.

Which of the following is correct? The break-even point occurs on the CVP graph where:

total contribution margin equals total fixed expenses

Break-even analysis assumes that:

unit variable expense is constant