Accounting 2110

A budget period should be a. for a year or more. b. long-term. c. long enough to provide an obtainable goal under normal business conditions. d. monthly.

c. long enough to provide an obtainable goal under normal business conditions

Which would be an appropriate cost driver for the machining activity cost pool? a. Machine setups b. Purchase orders c. Machine hours d. Inspections

c. machine hours

The amount by which actual or expected sales exceeds break-even sales is referred to as a. contribution margin. b. unanticipated profit. c. margin of safety. d. target net income.

c. margin of safety

Another name for the static budget is a. permanent budget. b. flexible budget. c. master budget. d. overhead budget.

c. master budget

Companies that sell products whose prices are set by market forces are called a. price givers. b. price leaders. c. price takers. d. price setters.

c. price takers

What is budgetary control? a. Another name for a flexible budget b. The degree to which the CFO controls the budget c. The use of budgets in controlling operations d. The process of providing information on budget differences to lower level managers

c. the use of budgets in controlling operations

The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is the a. cost of goods manufactured. b. total manufacturing overhead. c. total manufacturing costs. d. total cost of work in process.

c. total manufacturing costs

Assuming the selling division has available capacity, a negotiated transfer price should be within the range of a. fixed cost per unit and the external purchase price. b. total cost per unit and the external purchase price. c. variable cost per unit and the external purchase price. d. variable cost per unit and the opportunity cost.

c. variable cost per unit and the external purchase price

1) The contribution margin ratio increases when a. fixed costs increase. b. fixed costs decrease. c. variable costs as a percentage of sales decrease. d. variable costs as a percentage of sales increase.

c. variable costs as a percentage of sales decrease.

Mercantile Corporation has sales of $6,000,000, variable costs of $2,400,000, and fixed costs of $2,700,000. If Mercantile's sales increase by 1%, how much will the net income increase? (Hint: Calculate the operating leverage.) a. 1.33%. b. 1.67%. c. 1.50%. d. 4.00%.

d. 4.00%

In a job order cost accounting system, the Raw Materials Inventory account is a. not used b. a period cost c. an expense d. an asset account

d. an asset account

Budget reports should be prepared a. daily. b. monthly. c. weekly. d. as frequently as needed.

d. as frequently as needed

Budget reports should be prepared a. monthly. b. daily. c. weekly. d. as frequently as needed

d. as frequently as needed

Relevant costs are always a. sunk costs. b. fixed costs. c. variable costs. d. avoidable costs.

d. avoidable costs

A process cost system would most likely be used by a company that makes a. motion pictures b. repairs to automobiles c. college graduation announcements d. breakfast cereal

d. breakfast cereal

Direct materials and direct labor of a company total $8,000,000. If manufacturing overhead is $4,000,000, what is direct labor cost? a. $4,000,000 b. $8,000,000 c. $0 d. Cannot be determined from the information provided

d. cannot be determined from the information provided

Which of the following is NOT a typical cash flow related to equipment purchase and replacement decisions? a. Overhaul of equipment b. Salvage value of equipment when project is complete c. Increased operating costs d. Depreciation expense

d. depreciation expense

If a payback period for a project is greater than its expected useful life, the a. project would only be acceptable if the company's cost of capital was low. b. project's return will always exceed the company's cost of capital. c. project will always be profitable. d. entire initial investment will not be recovered.

d. entire initial investment will not be recovered.

Baden Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: a. Income would decrease by $8,000. b. Income would increase by $8,000. c. Income would increase by $140,000. d. Income would increase by $40,000.

d. income would increase by $40,000

A revenue that differs between alternatives and makes a difference in decision-making is called a(n) a. unavoidable revenue. b. irrelevant revenue. c. sales revenue. d. incremental revenue

d. incremental revenue

The two basic types of cost accounting systems are a. job order and batch systems b. process cost and batch systems c. job order and job accumulation systems d. job order and process cost systems

d. job order and process cost systems

Which of the following is not an example of an activity cost pool? a. Setting up machines b. Machining c. Inspecting d. Machine hours

d. machine hours

A process cost accounting system is most appropriate when a. individual products are custom made to the specification of customers. b. a variety of different products are produced, each one requiring different types of materials, labor, and overhead. c. the focus of attention is on a particular job or order. d. similar products are mass-produced.

d. similar products are mass-produced

All of the following are involved in the capital budgeting evaluation process except a company's a. board of directors. b. capital budgeting committee. c. officers. d. stockholders.

d. stockholders

Manufacturing company has..

three inventory accounts; raw materials inventory, work in process inventory, finished goods inventory

the break even point is where

total variable costs equal total fixed costs

True or false: The weighted- average method of computing equivalent units is the most widely used method in practice

true

True or false: a job order cost system identifies costs with a particular job rather than with a set time period

true

An allocation base

used to assign manufacturing overhead to individual jobs.

high-low method

uses the period with the lowest level of activity and the period with the highest level of activity

Product costs

direct materials, direct labor, and manufacturing overhead

True or false: a company that produces motion pictures would likely use a process cost system

false

True or false: a process cots accounting system is appropriate for similar products that are continuously mass produced

false

True or false: process cost systems are used to apply costs to a specific job, such as the manufacturing of a specialized machine

false

Products are homogenous or heterogenous.

homogenous

a future that does not differ between the alternatives

irrelevant

sunk cost

irrelevant cost

Merchandising company has...

one inventory account called inventory

unit-level activity

performed for each unit of production

opportunity cost

relevant cost

Price Variance

Difference between actual price and standard price

Quantity Variance

Difference between actual quantity and standard quantity

product-level activity

Performed every time a company produces a new type of product.

batch-level activity

Performed every time a company produces another batch of a product.

Job-order costing systems are used when 1. Many different products are produced each period. 2. Products are manufactured to order. 3. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. 4. all of the above

4. all of the above

fixed cost

A cost that remains constant, in total, regardless of changes in the level of the activity.

variable cost

A cost that varies, in total, in direct proportion to changes in the level of activity.

Administrative cost

All executive, organizational, and clerical costs.

target cost

Cost that provides the desired profit when the market determines a product's price.

Indirect materials

Materials used to support the production process.

Unfavorable materials price and quantity variances are generally the responsibility of the Price: Purchasing department Quantity: Purchasing Department Price: Production department Quantity: Production Department Price: Production Department Quantity: Purchasing Department Price: Purchasing department Quantity: Production Department

Price: Purchasing department Quantity: Production Department

incremental analysis

Process used to identify the financial data that change under alternative courses of action.

facility-level activity

Required to support or sustain an entire production process.

Deighan Company had the following amounts from its income statement: Sales revenue (800 units) $80,000 Cost of goods sold -fixed 20,000 Cost of goods sold -variable 18,500 Selling expenses - fixed 7,000 Selling expenses - variable 6,000 Administrative expenses - fixed 5,000 Administrative expenses - variable 7,500 How much is Deighan's contribution margin?

Sales less variable costs equals contribution margin: $80,000 − $18,500 − $6,000 − $7,500 = $48,000

Indirect labor

Wages paid to employees who are not directly involved in production work.

price taker

Where products are not easily differentiated from competitor goods, prices are not set by the company, but rather by the laws of supply and demand.

price setter

Where products are unique or clearly distinguishable from competitor goods, prices are set by the company

Prepare journal entries to record the following transaction: Direct materials requisitioned during the month: Job 101 $20,000 Job 102 16,000 Job 103 24,000 $60,000

Work in Process Inventory 60,000 Raw Materials Inventory 60,000

mixed cost

a mixed cost contains both variable and fixed elements

investment

a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.

Which of the following is an irrelevant cost? a. A sunk cost b. An incremental cost c. An opportunity cost d. An avoidable cost

a. a sunk cost

What activities and responsibilities are NOT associated with management functions? a. accountability b. controlling c. directing d. planning

a. accountability

Margin of safety is computed as a. actual sales - break-even sales. b. actual sales - contribution margin. c. contribution margin - fixed costs. d. break-even sales - variable costs.

a. actual sales-break-even sales

The last step in activity-based costing is to a. assign overhead costs to products, using overhead rates determined for each cost pool. b. compute the activity-based overhead rate per cost driver. c. identify and classify the activities involved in the manufacture of specific products, and allocate overhead to cost pools. d. identify the cost driver that has a strong correlation to the activity cost pool.

a. assign overhead costs to products, using overhead rates determined for each cost pool

Most of the capital budgeting methods use a. cash flow numbers. b. accrual accounting revenues. c. net income. d. accrual accounting numbers.

a. cash flow numbers

Which of the following is not a management function? a. Constraining b. Planning c. Controlling d. Directing

a. constraining

The costs that are easiest to trace directly to products are a. direct materials and direct labor. b. direct labor and overhead. c. direct materials and overhead. d. none of the above; all three costs are equally easy to trace to the product.

a. direct materials and direct labor

Which of the following is a batch-level activity? a. equipment setups b. product design c. assembling d. plant management

a. equipment setups

Which one of the following is not a benefit of budgeting? a. It provides assurance that the company will achieve its objectives. b. It facilitates the coordination of activities. c. It provides definite objectives for evaluating performance. d. It requires all levels of management to plan ahead on a recurring basis.

a. it provides assurance that the company will achieve its objectives

Another name for the static budget is a. master budget/planning budget. b. overhead budget. c. permanent budget. d. flexible budget.

a. master budget/planning budget

A major element in budgetary control is a. the comparison of actual results with planned objectives. b. the valuation of inventories. c. approval of the budget by the stockholders. d. the preparation of long-term plans.

a. the comparison of actual results with planned objectives.

The flow of costs in a job order cost system a.involves accumulating manufacturing costs incurred and assigning the accumulated costs to work done. b. cannot be measured until all jobs are complete. c. measures product costs for a set time period. d. generally follows a LIFO cost flow assumption.

a.involves accumulating manufacturing costs incurred and assigning the accumulated costs to work done.

Period costs

all selling costs and administrative costs.

Long-range planning a. is prepared on a quarterly basis if the budget is prepared on a quarterly basis. b. generally presents more detailed information than an annual budget. c. generally encompasses a longer period of time than an annual budget. d. is usually more accurate than an annual budget.

c. generally encompasses a longer period of time than an annual budget

In the month of June, a department had 20,000 units in beginning work in process that were 70% complete. During June, 90,000 units were transferred into production from another department. At the end of June there were 10,000 units in ending work in process that were 40% complete. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. The equivalent units of production for conversion costs for June were a. 90,000 equivalent units. b. 104,000 equivalent units. c. 100,000 equivalent units. d. 110,000 equivalent units.

b. 104,000 equivalent units

Which best describes the flow of overhead costs in an activity-based costing system? a. Overhead costs → direct labor cost or hours → products b. Overhead costs → activity cost pools → cost drivers → products c. Overhead costs → products d. Overhead costs → machine hours → products

b. Overhead costs → activity cost pools → cost drivers → products

A standard cost is a. the historical cost of producing a product last year. b. a predetermined cost. c. a cost which is paid for a group of similar products. d. the average cost in an industry.

b. a predetermined cost

The capital budget for the year is approved by a company's a. stockholders. b. board of directors. c. capital budgeting committee. d. officers.

b. board of directors

Most of the capital budgeting methods use a. accrual accounting numbers. b. cash flow numbers. c. net income. d. accrual accounting revenues.

b. cash flow numbers

The degree of operating leverage can be computed as: a. contribution margin ratio times the sales mix percentage. b. contribution margin divided by net income. c. net income divided by contribution margin ratio. d. net income divided by the sales mix percentage.

b. contribution margin divided by net income.

Which two methods are used most often when establishing a transfer price? a. Negotiated transfer pricing and cost-based transfer pricing b. Cost-based transfer pricing and market-based transfer pricing c. Negotiated transfer pricing and market-based transfer pricing d. Cost-based transfer pricing and standard-based pricing

b. cost-based transfer pricing and market-based transfer pricing

Which of the following is not a true statement? a. Incremental analysis might also be referred to as differential analysis. b. Incremental analysis is the same as CVP analysis. c. Incremental analysis is useful in making decisions. d. Incremental analysis focuses on decisions that involve a choice among alternative courses of action.

b. incremental analysis is the same as CVP analysis

An "Ordering and Receiving Materials" cost pool would most likely have as a cost driver: a. number of setups. b. number of purchase orders. c. number of inspection tests. d. machine hours.

b. number of purchase orders

Sales commissions are classified as a. overhead costs b. period costs. c. product costs. d. indirect labor.

b. period costs

Which of the following is not a facility-level activity? a. Plant management b. Product design c. Personnel administration d. Training

b. product design

Using standard costs a. makes employees less "cost-conscious." b. provides a basis for evaluating cost control. c. makes management by exception more difficult. d. increases clerical costs

b. provides a basis for evaluating cost control

Both direct materials and indirect materials are a. merchandise inventory b. raw materials c. manufacturing overhead d. sold directly to customers by a manufacturing company

b. raw materials

All of the following are involved in the capital budgeting evaluation process except a company's a. officers. b. stockholders. c. board of directors. d. capital budgeting committee.

b. stockholders

Why are budgets useful in the planning process? a. They provide management with information about the company's past performance. b. They help communicate goals and provide a basis for evaluation. c. They guarantee the company will be profitable if it meets its objectives. d. They enable the budget committee to earn their paycheck.

b. they help communicate goals and provide a basis for evaluation

The direct materials budget details 1. the quantity of direct materials to be purchased. 2. the cost of direct materials to be purchased.

both 1 and 2

Process costing is not used when a. similar goods are being produced. b. large volumes are produced. c. jobs have distinguishing characteristics. d. a series of connected manufacturing processes is necessary.

c. jobs have distinguishing characteristics

Kinney Company applies overhead on the basis of 150% of direct labor cost. Job No. 176 is charged with $150,000 of direct materials costs and $180,000 of manufacturing overhead. The total manufacturing costs for Job No. 176 is a. $330,000. b. $600,000. c. $450,000. d. $405,000.

c. $450,000

What is the primary difference between a static budget and a flexible budget? a. The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold. b. The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management. c. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels. d. The static budget contains only fixed costs, while the flexible budget contains only variable costs.

c. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.

Which of the following is an irrelevant cost? a. An avoidable cost b. An incremental cost c. A sunk cost d. An opportunity cost

c. a sunk cost

In a process cost system, a. a Work in Process account is maintained for each product. b. a materials requisition must identify the job on which the materials will be used. c. a Work in Process account is maintained for each process. d. one Work in Process account is maintained for all the processes, similar to a job order cost system.

c. a work in Process account is maintained for each process

Which one of the following would be the same total amount on a flexible budget and a static budget if the activity level is different for the two types of budgets? a. Direct materials cost b. Direct labor cost c. Variable manufacturing overhead d. Fixed manufacturing overhead

c. variable manufacturing overhead