Accounting 206
operating leverage
A measure of how sensitive net operating income is to a given percentage change in dollar sales. Also called degree of operating leverage.
duration driver
A measure of the amount of time required to perform an activity.
activity base
A measure of whatever causes the incurrence of a variable cost.
account analysis
A method for analyzing cost behavior in which an account is classified as either variable or fixed based
high-low method
A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels.
master budget
A number of separate but independent budgets that formally lay out the company's sales, production and financial goals and that culminates in a cash budget, budgeted income statement and budgeted balance sheet.
special order
A onetime order that is not considered part of the company's normal ongoing business.
sequential product processing
A pattern in which products follow a single path through the manufacturing process to finish goods inventory.
planning phase
Begins with goal identification, the specification of objectives to be sought or accomplished.
execution phase
Begins with the actual moment of decision: management commits to a specific plan of action.
period costs
Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued. Costs not assigned to products. Benefits associated with these costs are assumed to expire in the period incurred rather than in the period in which the product is sold.
transferred-in-costs
Costs transferred out of one department are transferred into the next department.
committed fixed costs
Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.
product costing
Involves accumulating and allocating the costs of all inputs in the manufacturing or acquisition process to individual products.
cost control
Involves the accumulation of information to measure management performance and evaluate operational efficiency.
materials requisition
Requesting that the product components on the bill of materials be pulled from inventory and brought to the assembly station.
zero-base budgeting
Requires budget preparers to start at a zero level for every item in the budget and justify every dollar, not just the increases or decreases.
decision making
Requires that a choice be made among alternatives.
partitive budgeting
Requires that detailed budget amounts be formulated "from the bottom up." All departments should participate in the development and refinement of the budget amounts so they will be accepted by the departments as reasonable standards of performance.
rate of return
Return divided by investment.
standard quantity per unit
The amount of an input that should be required to complete a single unit of product including normal inefficiencies.
standard quantity allowed
The amount of an input that should have been used to complete the period's actual output. It is computed by multiplying the actual number of units produced by the standard quantity per unit.
standard hours per unit
The amount of direct labor time that should be required to complete a single unit of product, including allowances for breaks etc.
contribution margin
The amount remaining from sales revenues after all variable expenses have been deducted.
cost of capital
The average rate of return that a company must pay to its long-term creditors and shareholders for the use of their funds.
residual income
The net operating income that an investment center earns above the minimum required return on its operating assets.
cash payback period
The time in years that it takes net future after-tax cash inflows to equal the original investment.
standard hours allowed
The time that should have been taken to complete the period's output. It is computed by multiplying the actual number of units produced by the standard hours per unit.
budgetary control
The use of budgets to manage and control a firm's activities
cost behavior analysis
The way in which a cost reacts to changes in the level of activity.
cost behavior
The way in which a cost reacts to changes in the level of activity
joint products
Two or more products that are produced from a common input.
work in process inventory
Units of a product that are only partially complete and will require further work before they are ready for sale to the customer.
finished goods inventory
Units of products that have been completed but not yet sold to customers.
product cost report
Used to accumulate costs by product or department.
swot analysis
Used to analyze and document those internal and external factors that both help and harm the company's ability to achieve its strategy.
time clocks
Used to collect the total amount of time that each employee worked during a particular pay period.
asset utilization
Used to compare the efficiency with which the divisions are using their operating assets to generate sales.
cost-volume profit analysis
Used to study the relationship among sales (revenue), costs (expenses), and profit (net income).
selling and admin expense budget
Will consist of variable and fixed expenses.
selling and administrative expense budget
Will consist of variable and fixed expenses.
Hannon Retailing Company prices its products by adding 30% to its cost. Hannon anticipates sales of $715,000 in July, $728,000 in August, and $624,000 in September. Hannon's policy is to have on hand enough inventory at the end of the month to cover 25% of the next month's sales. What will be the cost of the inventory that Hannon should budget for purchase in August? a. $509,600 b. $540,000 c. $680,000 d. $560,000
b
Costs which are always relevant in decision making are those costs which are: A. variable. B. avoidable. C. sunk. D. fixed.
b
Future benefits foregone when one option is chosen over another are called: A. Decision Costs B. Opportunity Costs C. Relevant Costs D. Sunk Costs E. None of the above
b
If a company has sufficient excess capacity, which of the following costs are relevant to the decision to make or buy a new product? A. Direct materials B. Variable overhead C. Fixed overhead D. Costs of buying from the outside vendor E. A, B, and D only
e
Standard costing can be used to apply costs for which of the following? A. Direct Materials B. Direct Labor C. Indirect Materials and Indirect Labor D. Factory Utilities E. All of the above can be applied using standard costing
e
Using a company-wide overhead rate rather than Activity-Based Costing might lead to which of the following problems?A. Overpricing products B. Under-pricing productsC. Discontinuing profitable operations D. Continuing unprofitable operations E. All of the above
e
What can cause a difference between the Cash budget and another budget? A. Sales made to customers on account B. Direct materials purchased on account C. Depreciation expense D. Prepayments for expenses such as Rent E. All of the above
e
return on sales
(ROS) ratio (the first component of the DuPont ROI formula) is useful in comparing the profitability of two divisions, which is simply calculated as the operating income number divided by sales.
allocation base
A measure of activity such as direct labor hours or machine hours that is used to assign costs to cost objects.
incremental analysis
An analytical approach that focuses only on those costs and revenues that change as a result of a decision.
Net present value method
1. Determine the amount of the investment outlay required in terms of incremental after-tax cash flows. 2. Estimate the amounts and timing of future operating receipts or cost savings in terms of incremental after-tax cash flows. 3. Estimate any incremental after-tax liquidation proceeds to be received on termination of the project. 4. Discount all future cash flows to their present value at an appropriate interest rate, usually the minimum desired rate of return on capital. 5. Subtract the investment outlay from the total present value of future cash flows to determine net present value. If net present value is zero or positive (returns equal or exceed investment), then the project's rate of return equals or exceeds the minimum desired rate of return and should be accepted. Negative net present values indicate that the project's return is les than desired, and the project should be rejected.
activity cost pool
A "bucket" in which costs are accumulated that relate to a single activity measure in an activity based costing system.
planning budget
A budget created at the beginning of the budgeting period that is valid only for the planned level of activity.
ending finished goods inventory budget
A budget showing the dollar amount of unsold finished goods inventory that will appear on the balance sheet.
profit center
A business segment whose manager has control over cost and revenue but not control over investments in operating assets.
cost center
A business segment whose manager has control over cost but has no control over revenue or investments.
Investment Center
A business segment whose manager has control over cost, revenue and investments in operating assets.
direct cost
A cost that can be easily and conveniently traced to a specific cost object, such as a unit of product.
indirect cost
A cost that cannot be easily and cost effectively traced to a specific cost object..
mixed costs
A cost that contains both variable and fixed costs.
sunk cost
A cost that has already been incurred and that cannot be changed by any decision made now or in the future.
common cost
A cost that is incurred to support a number of cost objects but that cannot be traced to them individually.
fixed cost
A cost that remains constant, in total, regardless of changes in the level of activity within a relevant range.
activity-based costing
A costing method based on activities that is designed to provide managers with cost information for strategic and other decisions.
absorption costings
A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of the product.
process costing
A costing method used when essentially homogeneous products are produced on a continuous basis.
job order-costing system
A costing system used in situations where many different products, jobs or services are produced in each period. Used for customized products and services. Characterized by a series of unique products or jobs undertaken either to fill specific orders from customers or to produce a general stock of products from which future customer orders are filled.
over-applied
A credit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost applied to work in process exceeds the amount of overhead cost actually incurred during the period.
under-applied
A debit balance in the manufacturing overhead account that occurs when the amount of overhead cost actually exceeds the amount of overhead cost applied to the work in process during a period.
make or buy desicion
A decision concerning whether an item should be produced internally or purchased from an outside supplier.
cash budget
A detailed plan showing how cash resources will be acquired and used over a specific time period.
direct material budget
A detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and provide for adequate inventories.
production budget
A detailed plan showing the number of units that must be produced during a period to satisfy both sales and inventory needs.
manufacturing overhead budget
A detailed plan showing the production costs, other than direct materials and direct labor that will be incurred over a specific period of time.
direct labor budget
A detailed plan that shows the direct labor hours required to fulfill the production budget.
differential cost
A difference in cost between two variables.
differential revenue
A difference in revenue between two alternatives.
bill of materials
A document that shows the quantity of each type of direct material required to make a product
cost drivers
A factor, such as machine hours, beds occupied, or computer time, that causes overhead costs.
static budget
A financial plan developed for a fixed level of operating activity, typically the expected or the most likely level.
traceable fixed cost
A fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated.
common fixed cost
A fixed cost that supports more than one business segment but is not traceable in whole or in part to any one of the business segments.
job order cost sheet
A form (or computer screen) that records the materials, labor and manufacturing overhead costs charged to a job
cash payback method
A form of capital expenditure analysis that evaluates investment proposals in terms of the cash payback period.
strategic planning
A formal process that addresses and documents the overall mission and long-term goals of the organization based on the vision statement.
constrained resource
A machine or some other part of a process that limits the total output of he entire system. Also referred to as bottlenecks.
FIFO method
A process costing method in which equivalent units and unit costs relate only to the work done during the current period.
weighted average method
A process costing method that blends together units and costs from both the current and prior periods.
safety stock
A quantity of inventory maintained to supply unexpected demand or to provide stock when manufacturing is slowed through delays in receipt of materials and components from suppliers.
predetermined manufacturing overhead rate
A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. Computed by dividing the budgeted or estimated total overhead cost for the year by the budgeted or estimated level of the application base.
contribution margin ratio
A ratio computed by dividing contribution margin by dollar sales.
variable expense ratio
A ratio computed by dividing variable expenses by dollar sales.
flexible budget
A report showing estimates of what revenues and costs should have been given the actual level of activity.
segment margin
A segment's contribution margin less its traceable fixed costs.
departmental overhead rates
A separate overhead rate is predetermined for each producing department in the factory by dividing the estimated overhead associated with each department by the estimated utilization of the capacity of that department.
transaction drivier
A simple count of the number of times an activity occurs.
plant wide overhead rate
A single predetermine overhead rate that is used throughout a plant. Determined by dividing the estimated total plant (or company) overhead for the year by estimated utilization of the total plant (or company) productive capacity for the year.
least squares regression method
A statistical tool that uses all of the data points to separate a mixed cost into its variable and fixed components.
benchmarking
A systematic approach to identifying the activities with the greatest potential for improvement.
price variance
A variance that is computed by taking the difference between the actual price and the standard price and multiplying the result by the actual quantity of the input.
quantity variance
A variance that is computed by taking the difference between the actual quantity of the input used and the amount of the input that should have been used for the actual level of output and multiplying the result by the standard price of the input.
organization sustaining activities
Activities that are carried out regardless of which customers are served, which products are produced, how many batches are run or how many units are made.
customer level activities
Activities that are carried out to support customers but are not related to any specific product.
batch level activities
Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch.
unit level activities
Activities that are performed each time a unit is produced.
product level activities
Activities that relate to specific products that must be carried out regardless of how many units are produced.
product costs
All costs necessary to bring a product to completion, regardless of the period in which they are incurred.
cost of goods sold
All costs that are accumulated in work in process eventually flow into finished goods and, when the products are sold, are recognized as cost of goods sold.
selling costs
All costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer.
administrative costs
All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling.
standard cost accounting
All inventory accounts—material, work in process, and finished goods—and the cost of goods sold account are stated in terms of standard or predetermined costs rather than actual costs incurred.
manufacturing overhead
All manufacturing costs not included in direct materials and direct labor. Includes indirect material, indirect labor, factory supplies used, factory payroll tax and fringe benefits costs, factory utilities, and factory building and machinery costs (such as depreciation, insurance, property taxes, and repairs and maintenance).
activity
An allocation base in an activity based costing system.
contribution approach
An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories.
incremental cost
An increase in cost between two alternatives
balanced scorecard
An integrated set of performance measures that are derived from and support the organization's strategy.
decentralization organization
An organization in which decision making authority is not confined to a few top executives but rather is spread throughout the organization.
processing department
An organizational unit where work is performed on a product and where materials, labor or overhead costs are added to the product.
responsibility centers
Any business segment whose manager has control over costs, revenues or investments in operating assets.
raw materials
Any materials that go into the final product.
segment
Any part or activity of an organization about which managers seek cost, revenue or profit data.
management
Anyone who directs the activities of others is a manager.
cost object
Anything for which cost data are desired. Anything for which business managers must determine a cost.
continuous budgeting
As each monthly or quarterly budget period passes, the oldest month or quarter is removed from the budget and another month or quarter is added to extend the budget to a full year in the future.
annuity
Cash flows that are the same each period over two or more equal periods.
operating assets
Cash, accounts receivable, inventory, plant and equipment and all other assets held for operating purposes.
total variable costs
Changes proportionally with changes in the volume of activity.
total manufacturing costs
Consist of direct materials, direct labor, and manufacturing overhead.
factory supplies
Consumable items, such as cleaning supplies and machinery lubricants, used in factory but not incorporated into the product.
semi-variable costs
Contains both fixed and variable components. Same as mixed costs.
step costs
Cost that are fixed within a relevant range but change at certain thresholds.
production department costs
Costs that are incurred by the production department, such as indirect labor, indirect materials, depreciation on equipment, supervisory wages, and so forth.
joint product cost
Costs that are incurred up to the split off point in a process that produces joint products.
planning
Developing goals and preparing budgets to achieve those goals.
conversion cost
Direct labor cost plus manufacturing overhead cost.
conversion costs
Direct labor cost plus manufacturing overhead cost.
production order
Directing the assembly employees to build an item in accordance with the customer's specification.
activities
Discrete tasks or steps in a manufacturing or service process. Events that cause the consumption of overhead resources in an organization.
target profit analysis
Estimating what sales volume is needed to achieve a specific target profit.
direct labor
Factory labor costs that can be easily traced to individual units of product. Includes the salary and wage cost of factory employees who work directly on the product (such as machine operators, assemblers, and painters).
cost of jobs or projects
Firms must know the cost of their services to determine the proper fee for those services and ensure a return to their owners. Service firms may include labor and other directly traceable costs in determining the cost of jobs or projects. Merchandising companies record the cost of acquired inventory as a product cost, whereas items such as salaries and wages, utilities, and depreciation are recorded immediately as operating expenses.
variable operating income statement
First deduct all variable costs from sales to calculate the contribution margin. Then deduct fixed costs from the contribution margin to calculate operating income.
budgeted statement of cash flows
Follows directly from the cash budget. The dollar amounts will be the same, but the grouping and sequence will usually be different.
budget period
Future time span for which the budget is prepared, varies according to the nature of the specific activity involved.
budget committee
Generally, consists of representatives from all major areas of the firm, such as sales, manufacturing, purchasing, and accounting, and is usually headed by the budget director.
sales forecast
How the anticipated sales volume is based.
worksheet
Illustrates the processes used by businesses at year-end to adjust the general ledger accounts and prepare financial statements.
office supplies
Include copy paper, toner, and paper clips, items used in the office but not charged to a particular job.
materials inventory
Includes factory materials and components that have been purchased but not yet placed into production.
net operating income
Income before interest and income taxes have been deducted.
time record
Keeping track of time either in written form on a time sheet or electronically through a time clock.
process costing system
Lends itself to the production of a large volume of homogenous products manufactured in a continual flow operation, such as the distillation of fuels or manufacture of paint or wire.
capital expenditures budget
Lists long-term assets that are planned to be acquired over a multiyear period.
prime cost
Made up of the elements of product cost that are easily and directly traceable to individual products. Direct materials plus direct labor.
direct materials
Materials that become an integral part of the finished product.
cost of goods remaining
Multiply the equivalent units of materials and conversion costs in ending inventory by their respective unit costs.
budget director
Must be well organized and a good communicator, since he or she is responsible for organizing the budgeting process, communicating with the people involved in budgeting, and monitoring the process to ensure that it proceeds on a timely basis
return on investment
Net operating income divided by average operating assets.
margin
Net operating income divided by sales.
cost-volume graph
One of the most useful tools for analyzing the relationship between changes in cost and volume.
variable costing
Only variable manufacturing costs are capitalized as inventory. This includes direct material, direct labor, and the variable portion of manufacturing overhead.
common expenses
Operating expenses or costs incurred for the benefit of multiple departments and thus neither traceable to nor controllable by a specific department.
traceable expenses
Operating expenses or costs traceable to and incurred for the benefit of a single department and thus ordinarily controllable by department.
sales budget
Provides the basis for all subsequent budgets.
DuPont Formula
ROI can be further divided into two ratios, return on sales and asset utilization (or asset turnover), which provided managers additional levers to improve the overall ROI.
turnover
Sales divided by average operating assets.
factory overhead
Same as manufacturing overhead.
just in time inventory
Seeks to eliminate the safety stock balances. A company operating under a complete just-in-time philosophy would have no inventories at the end of each day of operations, that is, zero balance of materials, work in process, and finished goods.
just-in-time inventory
Seeks to eliminate the safety stock balances. A company operating under a complete just-in-time philosophy would have no inventories at the end of each day of operations, that is, zero balance of materials, work in process, and finished goods.
parallel product processing
Similar products may begin with the same raw materials or processing in one department and then follow slightly different processes to arrive in finished goods inventory.
indirect materials
Small items of material such as glue and nails that may be an integral part of a finished product but whose costs cannot be easily or conveniently traced to it.
practical standards
Standards that allow for normal machine downtime and other work interruptions and that be attained through reasonable, though highly efficient, efforts by the average worker.
ideal standards
Standards that assume peak efficiency at all times.
evaluation phase
Steps are taken to control the outcome of a specific plan of action.
standard costs
The costs that should be incurred under normal, efficient operating conditions to produce specific products or to perform specific services.
variances
The deviations from the company's predetermined standards.
activity variance
The difference between a revenue or cost item in the static planning budget and the same item in the flexible budget.
labor efficiency variance
The difference between actual hours taken to complete a task and the standard hours allowed for the actual output multiplied times the standard hourly rate.
spending variance
The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost.
labor rate variance
The difference between the actual hourly labor rate and the standard hourly rate multiplied by the number of hours worked during the period.
Variable Overhead Efficiency Variance
The difference between the actual level of activity and the standard activity allowed multiplied times the predetermined overhead rate.
materials efficiency variance
The difference between the actual quantity and the standard quantity multiplied by standard price per unit.
material price variance
The difference between the actual unit cost paid for an item and the standard price multiplied by the quantity purchased.
variable overhead spending variance
The difference between the actual variable overhead cost incurred during a period and the standard cost that should have been incurred based on the actual level of activity,
margin of safety
The excess of budgeted or actual dollar sales over the breakeven dollar sales.
planning horizon
The future time span, usually expressed in years, for which a particular plan is developed
indirect labor
The labor costs of janitors, supervisors, material handlers, and other factory workers that cannot be conveniently traced to particular products. Included in manufacturing overhead.
standard rate per hour
The labor rate that should be incurred per hour of labor time including employment taxes and fringe benefits.
payback period
The length of time that it takes for a project to fully recover its initial cost of the net cash out of the net cash inflows that it generates.
break-even point
The level of sales in which profit is zero.
cost of good manufactured
The manufacturing costs associated with the goods that were finished during the period.
practical capacity
The maximum possible volume of activity, while allowing for normal downtime for repairs and maintenance.
hurdle rate
The minimum required rate of return for the cost of capital.
weighted average cost of capital
The overall cost of capital for a given project should reflect the cost rates of the several sources of funds in proportion to the amounts obtained from each source.
opportunity cost
The potential benefit that is given up when one alternative is selected over another.
standard price per unit
The price that should be paid for an input.
transfer price
The price that the selling profit center will charge the buying profit center for the product or service provided.
second stage allocation
The process by which activity rates are used to apply costs to products and customers in activity based costing.
first stage allocation
The process by which overhead costs are assigned to activity cost pools in an activity based costing system.
budgeting
The process of developing a formal, written operating plan that presents management's planned actions in financial terms.
operational planning
The process of developing specific goals and objectives for the entity as a whole and its individual departments, formulating an operating plan to accomplish the goals and objectives, and preparing written documentation of the goals and objectives as well as the operating plan.
control
The process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change.
capital budgeting
The process of planning significant investments in projects that have long term implications such as the purchase of new equipment or the introduction of a new product.
equivalent units
The product of the number of partially completed units and their percentage of completion with respect to a particular cost.
relevant range
The range of activity within which assumptions about variable and fixed cost behavior are valid.
cost structure
The relative proportion of fixed, variable and mixed costs in an organization.
time value of money
The right to receive an amount of money today is worth more than the right to receive the same amount at some future date, because a current receipt can be invested to earn interest over the intervening period
standard cost per unit
The standard quantity allowed of an input per unit of a specific product multiplied by the standard price of the input.
differential analysis
The study of those amounts that are expected to differ among alternatives.
relevant costs
Those costs that differ between alternatives.
discretionary fixed costs
Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items
excess present value index
Total present value of future cash flows divided by the initial investment.
activity based managing
Uses ABC information to better manage processes and activities within an organization.
performance report
Usually constructed periodically for each investment, profit, and cost center. They contain different levels of detail for different levels of managerial responsibility.
budgeted balance sheet
Usually follows the preparation of the budgeted income statement. It is based on the ending balance sheet form the prior year adjusted for the budgeted changes.
budgeted income statement
Usually prepared first. In addition to the budgets that were previously prepared, supplemental schedules and worksheets may be needed to prepare the budgeted income statement.
sales order
When a customer places an order, this specifies the model and customer- specified options.
Break-even quantity is defined as the volume of output at which revenues are equal to a. total costs. b. fixed costs. c. marginal costs. d. variable costs.
a
Colt Company uses a weighted-average process cost system to account for the cost of producing a chemical compound. As part of production, Material B is added when goods are 80% complete. Beginning work-in-process inventory for the current month was 20,000 units, 90% complete. During the month, 70,000 units were started in process, and 65,000 units were completed. There were no lost or spoiled units. If the ending inventory was 60% complete, the total equivalent units for Material B for the month were: a. 65,000 unitsc b. 85,000 units c. 70,000 units d. 90,000 units
a
Henry Manufacturing, which uses direct labor hours to apply overhead to its product line, undertook an extensive renovation and modernization program two years ago. Manufacturing processes were reengineered, considerable automated equipment was acquired, and 60% of the company's nonunion factory workers were terminated. Which of the following statements would apply to the situation at Henry? I. The company's factory overhead rate has likely increased. II. The use of direct labor hours seems to be appropriate. III. Henry will lack the ability to properly determine labor variances. IV. Henry has likely reduced its ability to quickly cut costs in order to respond to economic downturns. a. I and IV only. b. I, II, III, and IV c. II and IV only. d. I and III only.
a
If a manufacturing company uses variable costing to cost inventories, which of the following costs are considered inventoriable costs? a. Only raw materials direct labor, and variable manufacturing overhead costs b. Only raw materials, direct labor, variable manufacturing overhead, and variable selling and administrative costs c. Only raw materials and direct labor costs d. Only raw materials direct labor, and variable and fixed manufacturing overhead costs
a
If the beginning inventory of a company that manufactures only one product is 5,000 units, the sales forecast is 34,000 units sold, and the desired ending inventory is 6,000 units, how many units should be produced? A. 35,000 B. 33,000 C. 40,000 D. 39,000
a
The cash payback period is: A. The number of years needed on an investment for the after-tax cash flows to equal the original investment B. The number of years of positive after-tax cash flows needed to make the net present value of an investment equal 0. C. The number of years of positive after-tax cash flows, discounted to the present period, needed to equal the original investment D. The total time that an investment will return positive after-tax cash flows E. None of the above
a
The time value of money dictates that money received today will be worth ______ in the future than it is worth today? A. more B. less C. the same D. It depends on the discount
a
When are variances normally closed to Cost of Goods Sold? A. During year-end closing B. At the end of each month C. As products are sold D. When the variance occurs E. None of the above
a
When comparing absorption costing with variable costing, the difference in operating income can be explained by the difference between the a. ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit. b. ending inventory in units and the beginning inventory in units, multiplied by the unit sales price. c. units sold and the units produced, multiplied by the budgeted variable manufacturing cost per unit. d. units sold and the units produced, multiplied by the unit sales price.
a
When considering whether to continue to manufacture a part or buy it from an outside supplier, management should buy the part if the a. incremental cost to buy is less than the incremental cost to manufacture the part. b. equipment used for making the part is fully depreciated. c. equipment used for making the part could be sold. d. incremental cost to buy is less than the total cost to manufacture the part.
a
Which equation properly represents the Margin of Safety ratio? A. (Actual Sales - Break-even Sales) / Actual Sales B. Break-even Sales / Actual Sales C. (1 - Actual Sales) / Break-even Sales D. (1 - Break-even Sales) / Break-even Sales E. None of the above
a
Which of the following are not inputs to the Cash Budget? A. Cost of goods sold from the Budgeted Income Statement B. Materials purchased and paid-for from the Direct Materials Budget C. Purchases of long-term assets from the Capital Expenditures Budget D. Rental payments from the Manufacturing Overhead Budget E. None of the above are inputs to the Cash Budget
a
Which of the following comparisons best isolates the impact of a change in activity on performance? A. static planning budget and flexible budget B. static planning budget and actual results C. flexible budget and actual results D. master budget and static planning budget
a
Which of the following is not a potential source of capital for a company to invest in long-term assets? A. Credit terms from inventory suppliers B. Bank loans C. Net Income from past years D. Issuing additional common stock E. All of the above are potential sources of capital
a
Which of the following pieces of information is not needed to calculate the break-even point in units? A. Numbers of units sold B. Sales price per unit C. Variable cost per unit D. Total Fixed costs E. All of the above are needed
a
Which one of the following items is least likely to directly impact an equipment replacement capital expenditure decision? a. The net present value of the equipment that is being replaced. b. The amount of additional accounts receivable that will be generated from increased production and sales. c. The depreciation rate that will be used for tax purposes on the new asset. d. The sales value of the asset that is being replaced.
a
Which one of the following statements about the payback method of capital budgeting is correct? A. The payback method does not consider the time value of money. B. The payback method considers cash flows after the payback has been reached. C. The payback method uses discounted cash flow techniques. D. The payback method will lead to the same decision as other methods of capital budgeting.
a
Which one of the following statements concerning approaches for the budget development process is correct? a. Because department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget b. The authoritative approach to budgeting discourages strict adherence to strategic organizational goals. c. To prevent ambiguity, once departmental budgeted goals have been developed, they should remain fixed even if the sales forecast upon which they are based proves to be wrong in the middle of the fiscal year d. With the information technology available, the role of budgets as an organizational communication device has declined
a
budget
a detailed plan for the future that is usually expressed in formal quantitative terms
A process costing system would most likely be used for all of the following except a. a hay farmer b. a tailor c. a men's barbershop. d. a manufacturer of plywood sheets.
b
All of the following would appear on a schedule of cost of goods manufactured except for a. ending work-in-process inventory. b. beginning finished goods inventory. c. the cost of raw materials used. d. applied manufacturing overhead.
b
Allstar Company invests in a project with expected cash inflows of $9,000 per year for four years. All cash flows occur at year-end. The required return on investment is 9%. If the project generates a net present value (NPV) of $3,000, what is the amount of the initial investment in the project? a. $29,160 b. $26,157. c. $11,253. d. $13,236.
b
Caleb manufacturing produced 3,000 units during June even though the company had anticipated producing 2,800 units. The company's employees actually logged 3,200 hours during the month and were paid $8.40 per hour. The company's standard costing system indicates 1 direct labor hour per unit at a standard wage rate of $8.70. Which of the following is incorrect? a. The labor rate variance is $960 favorable. b. The labor efficiency variance is $3,480 unfavorable. c. The labor efficiency variance is $1,740 unfavorable. d. The actual amount paid to employees for their labor during the month is $26,880
b
Cerawell Products Company is a ceramics manufacturer that is facing several challenges in its operations due to economic and industry conditions. The company is currently preparing its annual plan and budget. Which one of the following is subject to the least control by the management of Cerawell in the current fiscal year? a. A new machine that was purchased this year has not helped reduce Cerawell's unfavorable labor efficiency variances b. A competitor has achieved an unexpected technological breakthrough that has given them a significant quality advantage and has caused Cerawell to lose market share c. Vendors have asked that the contract price for the goods they supply to Cerawell be renegotiated and adjusted for inflation d. Experienced employees have decided to terminate their employment with Cerawell and go to work for the competition Feedback
b
If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will: A. be equal to the net operating income under variable costing. B. be greater than net operating income under variable costing. C. be equal to the net operating income under variable costing plus total fixed manufacturing costs. D. be equal to the net operating income under variable costing less total fixed manufacturing costs.
b
Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if: A. production equals sales for that period.B. production exceeds sales for that period.C. sales exceed production for that period.D. the variable manufacturing overhead exceeds the fixed manufacturing overhead.
b
Streeter Company produces plastic microwave turntables. Sales for the next year are expected to be 65,000 units in the first quarter, 72,000 units in the second quarter, 84,000 units in the third quarter, and 66,000 units in the fourth quarter. Streeter maintains a finished goods inventory at the end of each quarter equal to one half of the units expected to be sold in the next quarter. How many units should Streeter produce in the second quarter? a. 84,000 units b. 78,000 units c. 75,000 units d. 72,000 units
b
What would be the correct chronological order of preparation for the following budgets? I. Cost of goods sold budget II. Production budget III. Purchases budget IV. Administrative budget a. I, II, III, IV b. II, III, I, IV c. III, II, IV, I d. IV, II, III, I
b
Which of the following best explains "step costs"? A. Costs that are fixed overall, but variable within a relevant range B. Costs that are fixed within a relevant range but change at certain thresholds C. Costs that change proportionally with changes in production D. Costs that increase disproportionately at higher levels of demand E. None of the above
b
Which one of the following items would most likely cause the planning and budgeting system to fail? a. Lack of adherence to rigid budgets during the year b. Lack of top management support c. Lack of input from several levels of management d. Lack of historical financial data
b
Which one of the following items would not be considered a manufacturing cost? a. Cream for an ice cream maker b. Sales commissions for a car manufacturer c. Plant property taxes for an ice cream maker d. Tires for an automobile manufacturer
b
Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range? a. Average cost per unit b. Variable cost per unit c. Unit fixed cost d. Total variable cost
b
Wilcox Corporation won a settlement in a lawsuit and was offered four different payment alternatives by the defendant's insurance company. A review of interest rates indicates that 8% is appropriate for analyzing this situation. Ignoring any tax considerations, which one of the following four alternatives should the controller recommend to Wilcox management? a. $40,000 per year at the end of each of the next four years b. $5,000 now and $20,000 per year at the end of each of the next ten years c. $5,000 now and $5,000 per year at the end of each of the next nine years, plus a lump-sum payment of $200,000 at the end of the tenth year d. $135,000 now
b
A Max Machining incurs the following utilities costs at different levels of production: 0 units: $120 500 units: $2,620 1,000 units: $5,120 How would utility costs be properly classified? A. Fixed B. Variable C. Mixed D. Stepped E. Curvilinear
c
A general rule in relevant cost analysis is: A. variable costs are always relevant. B. fixed costs are always irrelevant. C. differential future costs and revenues are always relevant. D. depreciation is always irrelevant.
c
All of the following are assumptions of cost-volume-profit analysis except a. sales mix for multi-product situations do not vary with volume changes. b. revenues change proportionately with volume. c. variable costs per unit change proportionately with volume. d. total fixed costs do not change with a change in volume.
c
Break-even analysis assumes that: A. total costs are constant.B. the average fixed expense per unit is constant.C. the average variable expense per unit is constant.D. variable expenses are nonlinear.
c
Fixed expenses are $375,000 per month. The company is currently selling 8,000 units per month. The marketing manager would like to cut the selling price by $15 and increase the advertising budget by $23,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 3,100 units. What should be the overall effect on the company's monthly net operating income of this change? A. Decrease of $128,900B. Increase of $426,500C. Increase of $8,900D. Increase of $128,900
c
For a given investment project, the interest rate at which the present value of the cash inflows equals the present value of the cash outflows is called the Select one: a. cost of capital. b. payback rate. c. internal rate of return. d. hurdle rate.
c
How are byproducts costed in a company? A. They are allocated a portion of the joint costs B. They are allocated the selling price less any disposal costs C. They are allocated a portion of the joint costs and any disposal costs D. They are allocated the selling price E. They are allocated the disposal costs
c
All of the following are advantages of the use of budgets in a management control system, except that budgets a. provide performance criteria b. force management planning c. promote communication and coordination within the organization d. limit unauthorized expenditures
d
Micah Corporation purchased 3,800 pounds of raw materials on March 1 at a price of $5.20 per pound to use in production during March. Micah produced 2,000 units during March though the production budget anticipated production of 2,200 units. The company's standards recommend 2 pounds of materials per unit and dictate a standard price of $5.05 per pound. Which of the following is correct with respect to Micah's materials variances for the month of March? a. The materials price variance is $570 favorable. b. The materials efficiency variance is $1,010 unfavorable. c. The materials price variance is $570 unfavorable. d. The materials efficiency variance is $3,030 favorable.
c
Of the following pairs of variances found in a flexible budget report, which pair is most likely to be related? a. Material price variance and variable overhead efficiency variance. b. Labor rate variance and variable overhead efficiency variance. c. Material usage variance and labor efficiency variance. d. Labor efficiency variance and fixed overhead volume variance
c
Operating income under variable costing is contribution margin minus a. cost of goods sold and administrative expenses. b. fixed manufacturing overhead and variable manufacturing overhead. c. fixed manufacturing overhead and fixed selling and administrative expenses. d. variable selling and administrative expenses and fixed selling and administrative expenses.
c
Product costs in a complex organization are likely to be distorted if a traditional volume-based cost driver is used and a. direct labor costs are a significant percentage of total production costs. b. raw materials costs are a significant percentage of total production costs. c. manufacturing overhead costs are a significant percentage of total production costs. d. direct costs are a significant percentage of total production costs.
c
Smith Company started business on September 1. Smith had credit sales of $200,000 in September and $300,000 in October. The pattern for collection of cash from customers is expected to be 40% in the month of sale (subject to a 2% cash discount), 50% in the month following the month of sale, and 7% in the second month following the month of sale, with 3% uncollectible. How much cash did Smith Company receive from customers on account during October? A. $120,000 B. $117,600 C. $217,600 D. $220,000
c
The journal entry to record the application of manufacturing overhead to production would include a debit to which account? a. Cost of goods sold b. Manufacturing overhead c. Work-in-process inventory d. Cost of goods manufactured
c
Todco planned to produce 3,000 units of its single product, Teragram, during November. The standard specifications for one unit of Teragram include six pounds of material at $0.30 per pound. Actual production in November was 3,100 units of Teragram. The accountant computed a favorable materials purchase price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that: A. more materials were purchased than were used. B. more materials were used than were purchased. C. the actual cost of materials was less than the standard cost. D. the actual usage of materials was less than the standard allowed.
c
When considering a special order, management should accept the order if which of the following conditions is met? a. Incremental costs are greater than incremental revenues. b. There is excess production capacity. c. Incremental costs are less than incremental revenues. d. Employees are willing to work overtime.
c
When using differential analysis to analyze two alternatives to the current operation, what factors should not be considered? a. Direct material costs that are different b. Direct labor costs that exist for only one alternative c. Overhead costs that are the same for both alternatives d. Sales commissions that apply to only one alternative
c
Which of the following costs would be considered sunk costs? A. CEO salary, not based on performance B. Direct Labor wage C. Yearly depreciation on factory equipment D. Utilities expense E. None of the above
c
Which one of the following is true with respect to variable and absorption costing systems? a. Absorption costing systems include fixed manufacturing overhead as period costs. b. Variable costing systems include variable manufacturing overhead as period costs. c. Variable costing systems include fixed manufacturing overhead as period costs. d. Absorption costing systems include variable manufacturing overhead as period costs.
c
With respect to relevant information for decision making, which of the following is TRUE? a. Customer satisfaction and quality concerns are not relevant for management accounting decision making. b. Fixed costs are never relevant costs. c. Relevant costs will include opportunity costs if current production is at capacity. d. Managers should pay little attention to bottleneck operations since they have limited capacity for producing output.
c
A company budgets to sell 4,000 units of its product. Actual sales are 4,200 units. The product has a standard price of $43. When analyzing its direct labor flexible-budget variance for the period, the company determined that its direct labor efficiency variance was an unfavorable variance of $8,600. Which one of the following is closest to the actual price for direct labor if the total direct labor flexible-budget variance was an unfavorable variance of $4,000? a. $39 b. $40 c. $41 d. $42
d
All of the following are likely to be used as a cost allocation base in activity-based costing except the a. number of vendors supplying the materials used to manufacture the product. b. number of different materials used to manufacture the product. c. units of materials used to manufacture the product. d. cost of materials used to manufacture the product.
d
Carson Inc. manufactures only one product and is preparing its budget for next year based on the following information. Selling price per unit...................... $100 Variable costs per unit .................. .. 75 Fixed costs............................. 250,000 Effective tax rate......................... 35% If Carson wants to achieve an after tax net income of $1.3 million next year, its sales must be A. 62,000 units. B. 70,200 units. C. 80,000 units. D. 90,000 units.
d
Frisco Company recently purchased 108,000 units of raw materials for $583,200. Three units of raw materials are budgeted for use in each finished good manufactured, with the raw materials standard set at $16.50 for each completed product. Frisco manufactured 32,700 finished units during the period just ended and used 99,200 units of raw materials. If management is concerned about the timely reporting of variances in an effort to improve cost control and bottom-line performance, the materials purchase price variance should be reported as a. $6,050 unfavorable. b. $9,920 favorable. c. $10,800 unfavorable. d. $10,800 favorable.
d
If investment A has a payback period of 3 years and investment B has a payback period of 4 years, then: A. A has a higher net present value than B. B. A has a lower net present value than B. C. A and B have the same net present value. D. the relation between investment A's net present value and investment B's net present value cannot be determined from the given information.
d
Johnson Company manufactures a variety of shoes, and has received a special one-time-only order directly from a wholesaler. Johnson has sufficient idle capacity to accept the special order to manufacture 15,000 pairs of sneakers at a price of $7.50 per pair. Johnson's normal selling price is $11.50 per pair of sneakers. Variable manufacturing costs are $5.00 per pair and fixed manufacturing costs are $3.00 a pair. Johnson's variable selling expense for its normal line of sneakers is $1.00 per pair. What would the effect on Johnson's operating income be if the company accepted the special order? a. Decrease by $60,000 b. Increase by $22,500 c. Increase by $52,500 d. Increase by $37,500
d
Stryker Corporation has two major business segments-East and West. In April, the East business segment had sales revenues of $500,000, variable expenses of $280,000, and traceable fixed expenses of $80,000. During the same month, the West business segment had sales revenues of $970,000, variable expenses of $514,000, and traceable fixed expenses of $184,000. The common fixed expenses totaled $280,000 and were allocated as follows: $112,000 to the East business segment and $168,000 to the West business segment. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A. $412,000B. $676,000C. ($148,000)D. $132,000
d
The loss of a key customer has temporarily caused Bedford Machining to have some excess manufacturing capacity. Bedford is considering the acceptance of a special order, one that involves Bedford's most popular product. Consider the following types of costs: I. Variable costs of the product II. Fixed costs of the product III. Direct fixed costs associated with the order IV. Opportunity cost of the temporarily idle capacity Which one of the following combinations of cost types should be considered in the special order acceptance decision? a. II and III b. I and IV c. I and II d. I, III, and IV
d
The standards for direct labor for a product are 2.5 hours at $8 per hour. Last month, 9,000 units of the product were made and the labor efficiency variance was $8,000 F. The actual number of hours worked during the past period was: A. 23,500 B. 22,500 C. 20,500 D. 21,500
d
When compared to static budgets, flexible budgets a. offer managers a more realistic comparison of budget and actual fixed cost items under their control. b. provide a better understanding of the capacity variances during the period being evaluated. c. encourage managers to use less fixed cost items and more variable cost items that are under their control. d. offer managers a more realistic comparison of budget and actual revenue and cost items under their control.
d
Which of the following factors would lead a company to make a component rather than buy it? A. Other, more profitable uses for production equipment B. Concerns that the company is too highly invested in fixed assets C. Attractive deals offered by suppliers D. Greater control over production quality
d
Which of the following factors would most likely not influence the standard level of variable overhead capacity? A. Machine performance levels B. Engineering studies C. Employee performance D. Market demand levels E. All of the above affect the level of variable overhead capacity
d
Which of the following is not an assumption of CVP analysis? A. Total fixed cost and total variable cost per unit are constant over the entire range of analysis. B. Sales price will remain constant on a per-unit basis regardless of the level of sales. C. The sales mix ratio (for multiple products) remains constant. D. All costs are variable in the relevant range.E. All of the above
d
Which one of the following statements concerning approaches for the budget development process is correct? a. The authoritative approach to budgeting discourages strict adherence to strategic organizational goals. b. To prevent ambiguity, once departmental budgeted goals have been developed, they should remain fixed even if the sales forecast upon which they are based proves to be wrong in the middle of the fiscal year. c. With the information technology available, the role of budgets as an organizational communication device has declined. d. Because department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget
d
icker Company sells two products. Product A provides a contribution margin of $3 per unit, and Product B provides a contribution margin of $4 per unit. If Ticker's sales mix shifts toward Product A, which one of the following statements is correct? a. The overall contribution margin ratio will increase. b. The total number of units necessary to break even will decrease. c. The contribution margin ratios for Products A and B will change. d. Operating income will decrease if the total number of units sold remains constant.
d
Which of the following are advantages of budgeting? A. It helps management to get out of just doing things the same way and notice what can be improved. B. It helps a company achieve their long-range goals. C. It can be used for performance evaluation. D. It unifies the efforts of various departments in pursuit of company objectives. E. All of the above
e
Which of the following are factors that may be evaluated when preparing the sales forecast? A. Number of full-time employees available to work B. Expected business activities or competitors C. Market research studies D. Upcoming advertising campaigns E. Three of the above
e
Which of the following costs would be subtracted from Revenue to calculate Contribution Margin on a Variable Income Statement? A. Direct Materials costs B. Sales commissions C. Variable Manufacturing Overhead D. Direct Labor Wages E. All of the above
e
Which of the following could be a variance that would be highlighted through standard costing? A. Wage increases B. Materials price increases C. Excess overtime hours D. Fixed cost reductions E. All of the above
e
Which of the following is needed in order to prepare the flexible budget? A. Standard variable overhead cost driver usages B. Actual production levels C. Actual overall variable costs D. Budgeted per-unit direct materials costs E. All of the above
e
revenue variance
he difference between how much the revenue should have been, given the actual level of activity and the actual revenue for the period
