Accountancy II Quiz Conceptual Questions (True or False)
A continuous or perpetual budget is a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed
True
A cost that can be avoided by choosing one alternative over another is relevant for decision purposes
True
A factory supervisor's salary would be classified as an indirect cost with respect to unit of a product
True
A revenue variance is the difference between what the total sales revenue should be, given the actual level of activity of the period, and the actual total sales revenue
True
A shift in the sales mix from products with high contribution margin ratios towards products with low contribution margin ratios will raise the break-even point for the company as a whole
True
Actual overhead costs are not assigned to jobs in a job costing system
True
Advertising is not considered as a product cost even if it promotes a specific product
True
All other things the same, an increase in unit sales will normally result in an increase in the ROI
True
An advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income
True
An employee time ticket is an hour-by-hour summary of the employee's activities throughout the day
True
Book value per common share is based on past transactions whereas the market price of a share of stock mainly reflects what investors expect to happen in the future
True
Cash collections in a schedule of cash collections typically consists of collections on sales made to customers in prior periods plus collections on sales made in the current budget period
True
Comparing a static planning budget to actual costs is not a good way to assess whether variable costs are under control
True
Conversion cost is the sum of direct labor cost and manufacturing overhead cost
True
The costs attached to products that have not been sold are included in ending inventory on the balance sheet
True
The fact that one department may be labor intensive while another department is machine intensive explains in part why multiple predetermined overhead rates are often used in larger companies
True
The labor efficiency variance is labeled favorable (F) if the actual hours used is less than the standard hours allowed for the actual output
True
The master budget consists of a number of separate but interdependent budgets
True
The materials price variance is computed based on the amount of materials purchased during the period
True
The production budget is typically prepared before the direct materials budget
True
The selling and administrative budget is typically prepared before the cash budget
True
The labor variance measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the standard hours allowed for the actual output
False
The margin of safety percentage is equal to the margin in safety in dollars divided by the total contribution margin
False
Control involves developing goals and preparing various budgets to achieve those goals
False
Fixed costs are irrelevant in decisions about whether a product should be dropped
False
Fixed costs are sunk costs
False
Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes
False
For a given level of sales, a low contribution margin ratio will product more net operating income than a high contribution margin ratio
False
For performance evaluation purposes, variables service department costs should be charged to operating departments in predetermined, lump-sum amounts
False
Future costs that do differ among the alternatives are not relevant in a decision
False
Future costs that do not differ between the alternatives in a decision are avoidable costs
False
If a job is not completed at year end, then no manufacturing overhead cost would be applied to that job when a predetermined overhead rate is used
False
If demand is insufficient to keep everyone busy and workers are not laid off, a favorable (F) labor efficiency variance often will be a result
False
If the allocation base in the predetermined overhead rate does not drive overhead costs, it will nevertheless provide reasonably accurate unit product costs because of the averaging process
False
If the overhead rate is computed annually based on the actual costs and activity for the year, the manufacturing overhead assigned to any particular job can be computed as soon as the job is completed
False
In a CVP graph, the anticipated profit or less at any given level of sales is measured by the vertical distance between the total revenue line (sales) an the total fixed expense line
False
In a job-order cost system, indirect labor is assigned to a job using information from the employee time ticket
False
In a job-order costing system, costs are traced to individual units of product. The sum total of such traced costs is called the unit product cost
False
In a manufacturing company, all costs are period costs
False
In a special order situation, any fixed cost associated with the order would be irrelevant
False
In general, the production manger is responsible for the materials price variance
False
In service department cost allocations, sales dollars should be used as an allocation base whenever possible
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
One disadvantage of budgeting is that it makes it more difficult to coordinate the plans and activities of departmental managers
False
One of the weaknesses of budgets is that they are of little value in uncovering potential bottlenecks
False
Purchasing inventory on credit increases the book value per share of a retailer
False
ROI equals margin multiplied by sales
False
Residual income can be used most effectively in comparing the performance of divisions of different size
False
Selling costs are indirect costs
False
Since sales dollars represents "ability to pay," it is superior to most other bases used for allocating or charging service department costs
False
Sunk costs and future costs that do not differ between the alternatives may or may not be relevant in a decision
False
The activity variance for revenue is favorable if that actual revenue for the period exceeds the revenue in the static planning budget
False
The amount of overhead applied to a particular job equals the actual amount of overhead caused by the job
False
The book value of an old machine is always considered an opportunity cost in a decision
False
The cash budget is the starting point in preparing the master budget
False
The degree of operating leverage is computed by dividing sales by the contribution margin
False
The disbursements section of a cash budget consists of all cash payments for the period except cash payments for dividends
False
Contribution margin and gross margin mean the same thing
False
A benefit from budgeting is that it forces managers to think about and plan for the future
True
A bill of materials is a document that lists the type and quantity of each type of direct materials needed to complete a unit of a product
True
A common size financial statement is a vertical analysis in which each financial statement account is expressed as a percetage
True
A complete income statement need not be prepared as part of a differential cost analysis
True
Contribution format income statements are prepared primarily for external reporting purposes
False
Consistency demands that a cost that is relevant in one decision be regarded as relevant in other decisions as well
False
An employee time ticket is used to record points that are earned by employees based on the hours they worked that can be used to pay for coffee, food in the cafeteria, and even in some cases for vacation travel
False
An unfavorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period
False
Avoidable costs are irrelevant costs in decisions
False
A cost that is traceable to a segment through activity-based costing is always an avoidable cost for decision-making
False
A decrease in the number of units sold will decrease the break even point
False
A flexible budget performance report contains activity variances but not revenue or spending variances
False
A flexible budget performance report with more than one cost driver can contain activity variances but not revenue or spending variances due to the increased complexity
False
A flexible budget performance report with ore than once cost driver will always have more unfavorable revenue and spending variances than a performance report with only one cost driver
False
A job cost sheet is used to record how much a customer pays for the job once the job is completed
False
A revenue variance is unfavorable if the revenue in the static planning budget is less than the revenue in the flexible budget
False
A shift in the sales mix from low-margin items to high-margin items will decrease total profits even though total sales increase
False
Actual costs are determined by plugging the actual level of activity for a period into the cost formulas used in flexible budgets
False
Administrative costs are indirect costs
False
An activity variance is the difference between an actual revenue or cost and the revenue or cost in the flexible budget that is adjusted for the actual level of activity of the period
False
An avoidable cost is a sunk cost that can be eliminated (in whole or in part) as a result of choosing one alternative or another
False
The production budget is typically prepared prior to the sales budget
False
The standard labor rate per hour should not include any employment taxes
False
The transfer price used for internal transfers between divisions of the same company cannot affect the divisions' reported profits
False
The variable cost per unit depends on how many units are produced
False
Two companies with the same margin of safety in dollars will also have the same total contribution margin
False
Within the relevant range, a change in activity results in a change in variable cost per unit and total fixed cost
False
Depreciation on equipment a company uses in its selling and administrative activities would be classified as a period cost
True
Differences between the static planning budget and the flexible budget show what should have happened because the actual level of activity differed from what had been planned
True
Fawn Company's margin of safety is $90,000. If the company's sales drop by $80,000, it will still have positive net operating income
True
Fixed costs should not be ignored when evaluating how well a manager has controlled costs
True
Flexible budgets can be used when there is more than one cost driver (i.e., measure of activity)
True
If a company contains a number of investment centers of different sizes, ROI should be used rather than residual income to rank the financial performance of the divisions
True
If a retailer sells a product whose contribution margin equals the gross margin percentage, the gross margin percentage will be unaffected by the transaction
True
If fixed expenses increase by $10,000 per year, then the sales needed to break even will generally increase by more than $10,000
True
If the actual hourly rate is greater than the standard hourly rate, the labor rate variance is labeled unfavorable (U)
True
If the actual hourly rate is greater than the standard hourly rate, the labor variance is labeled unfavorable (U)
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 on the x-axis and dollars is on the y-axis
True
In a flexible budget, when the activity declines, the total variable cost also declines
True
In the merchandise purchases budget, the required purchases (in units) for a period can be determined by subtracting the beginning merchandise inventory (in units) from the budgeted sales (in units) and desired ending merchandise inventory (in units)
True
Job-order costing systems often use allocation bases that do not reflect how jobs actually use overhead resources
True
Liquidity refers to how quickly an asset can be converted into cash
True
Most countries require some form of absorption costing for external reports
True
Prime cost is the sum of direct materials cost and direct labor cost
True
ROI and residual income are tools used to evaluate managerial performances in investment centers
True
Residual income is the difference between net operating income and the product of average operating assets and the minimum rate of return
True
Residual income should be used to evaluate an investment center rather than a cost or profit center
True
The amount that a manufacturing company could earn by renting unused portions of its warehouses is an example of an opportunity cost
True
The basic objective of responsibility accounting is to charge each manager with those costs and/or revenues over which he was control
True
The break-even points in units can be obtained by dividing total fixed expenses by the unit contribution margin
True
The budgeted income statement is typically prepared before the budgeted balance sheet
True
The budgeted variable selling and administrative expenses is calculated by multiplying the budgeted unit sales by the variable selling and administrative expense per unit
True
The standard quantity of standard hours allowed refers to the amount of the input that should have been used to produce the actual output of the period
True
The standard quantity or standard hours refers to the amount of the input that should have been used to produce the actual output of the period
True
The sum of all manufacturing costs except for direct materials and direct labor is called manufacturing overhead
True
The use of ROI as a performance measure may lead managers to reject a project that would be favorable for the company as a whole
True
The variable costs of a product are relevant in a decision concerning whether to eliminate the product
True
The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate
True
To estimate what the profit will be at various levels of sales volume, multiply the number of units to be sold above or below the break-even points by the unit contribution margin
True
To help assess how well a manager has controlled costs, actual costs should be compared to what the costs should have been for the actual level of activity
True
Variable costs per unit are not affected by changes in activity
True
Vertical analysis of financial statements is accomplished by preparing common size statements
True
When a company has a production constraint, the total contribution margin will be maximized by emphasizing the products with the highest contribution margin per unit of the constrained resource
True
When more hours of labor time are necessary to complete a job than the standard allows, the labor efficiency variance is unfavorable
True
When the materials price variance is recorded at the time of purchase, raw materials are recorded as inventory at standard cost
True
When used in ROI calculation, turnover equals sales divided by average operating assets
True
