Accounting Final Exam
A(n) ________ cost is one whose total amount changes in direct proportion to a change in volume. A.variable B.fixed C.mixed D.irrelevant
A
"Number of new products developed" would be a key performance indicator (KPI) for which of the four balanced scorecard perspectives? A.Financial B.Internal business C.Customer D.Learning and growth
B
Which of the following is an example of overhead? A.Insurance expense B.Utilities expense C.Rent expense D.All of the above
D
T/F: Fixed costs vary in total over a wide range of activity levels.
False
T/F: A flexible budget is a budget prepared for a different level of volume than that which was originally anticipated.
True
T/F: A marginal cost is the cost of making one more unit of a product.
True
Total Cost
the cost of all resources used throughout the value chain
Assume a grocery store manager wants to know the cost of running the Produce Department. Thus, the Produce Department is the cost object. Which of the following would be considered direct costs of the Produce Department? 1.Wages of checkout clerks 2.Wages for workers in the Produce Department 3.Depreciation on refrigerated produce display cases 4.Cost of weekly advertisements in local newspaper 5.Cost of bananas, lettuce, and other produce 6.Baggies and twist ties available for shoppers in the Produce Department 7.Monthly lease payment for grocery store retail location 8.Cost of scales hanging in the Produce Department
1. Indirect 2. Direct 3. Direct 4. Indirect 5. Direct 6. Direct 7. Indirect 8. Direct
Which of the following costs are treated as product costs by a merchandising company, such as Walmart? Which costs are treated as period costs? 1.Cost of leasing the retail locations 2.Cost of manager's and sales associates' salaries 3.Cost of merchandise purchased for resale 4.Cost of designing and operating the company's website 5.Cost of shipping merchandise to the store 6.Cost of providing free shipping to customers who buy product online 7.Cost of utilities used in running the retail locations 8.Cost of import duties paid on merchandise purchased from overseas suppliers 9.Depreciation on store shelving and shopping carts
1. Period Cost 2. Period Cost 3. Product Cost 4. Period Cost 5.Product Cost 6. Period Cost 7. Period Cost 8. Product Cost 9. Period Cost
"A measure of profitability computed by dividing the average annual operating income by the amount of the investment" is best described by which of the following terms? A.Accounting rate of return B.Internal rate of return C.Discount rate D.Net present value
A
A segment margin is the operating income generated by subtracting A.only direct fixed expenses from a segment's contribution margin. B.all fixed expenses from a segment's contribution margin. C.all expenses from a segment's sales revenue. D.only common fixed expenses from a segment's contribution margin.
A
A sunk cost is described as which of the following? A.A historical cost that is always irrelevant B.A historical cost that may be relevant C.One that is relevant to a decision because it changes depending on the alternative course of action selected D.An outlay expected to be incurred in the future
A
Activities incurred regardless of how many units, batches, or products are produced are called _____ activities. A.facility-level B.batch-level C.product-level D.unit-level
A
All else being equal, a decrease in a company's fixed expenses will: A.decrease the sales needed to break even. B.increase the contribution margin. C.increase the sales needed to break even. D.decrease the contribution margin.
A
An investment's NPV is calculated as which of the following? A.The present value of the net cash inflows from the investment minus the investment's initial investment B.The future value of the investment minus the investment's initial investment C.The investment's initial investment minus the present value of the investment D.The investment's initial investment minus the future value of the investment
A
Fixed costs that may be avoided in the future are referred to as A.relevant costs. B.opportunity costs. C.replacement costs. D.sunk costs.
A
How do variable costs per unit behave? A.They remain the same throughout production levels within the relevant range. B.They decrease as production increases. C.They decrease as production decreases. D.They increase as production decreases.
A
If Caesars has a high operating leverage, this means the company has relatively more ___________ costs and fewer ___________ costs. A.Fixed; variable B.Fixed; mixed C.Mixed; variable D.Variable; fixed
A
In a special sales order decision, incremental fixed costs that will be incurred if the special order is accepted are considered to be A.relevant to the decision. B.irrelevant to the decision. C.opportunity costs. D.sunk costs.
A
In a ____________ center, a Caesars manager would be accountable for both revenues and costs. A.Profit B.Investment C.Cost D.Revenue
A
In order for information to be relevant it must be ____________ data that ____________ among alternatives. A.Future; differs B.Future; is similar C.Past; differs D.Past; is similar
A
In terms of responsibility centers, a large corporate division would be considered a(n) A.investment center. B.revenue center. C.profit center. D.cost center.
A
Manufacturing overhead is underallocated if the amount A.allocated during the period is less than the actual amount incurred. B.allocated during the period is greater than the actual amount incurred. C.estimated for the period is less than the actual amount incurred. D. estimated for the period is greater than the actual amount incurred.
A
Manufacturing overhead is underallocated if the amount A.allocated during the period is less than the actual amount incurred. B.estimated for the period is less than the actual amount incurred. C.estimated for the period is greater than the actual amount incurred. D.allocated during the period is greater than the actual amount incurred.
A
Period costs are often referred to as A.operating expenses. B.product costs. C.direct costs. D.manufacturing expenses.
A
The first step in computing and using ABC is which of the following? A.Identifying the company's primary activities B.Selecting appropriate allocation bases C.Allocating some MOH to each job D.Calculating activity cost allocation rates
A
The first step in developing an ABC system is A.identify the primary activities and estimate a total cost pool for each. B.calculate an activity cost allocation rate for each activity. C.allocate the costs to the cost object using the activity cost allocation rates. D.select an allocation base for each activity.
A
The four perspectives of the balanced scorecard include all of the following except A.cost. B.learning and growth. C.customer. D.financial.
A
The higher the operating leverage factor, the A.greater the impact of volume on operating income. B.more likely operating income is to stay constant. C.less the impact of volume on operating income. D.none of the above.
A
The maintenance department that focuses on efficiency at Continental Airlines may be classified as a(n) A.cost center. B.investment center. C.profit center. D.revenue center.
A
Unavoidable fixed costs are A.irrelevant to the decision of whether to discontinue a product line because they will not differ between alternatives. B.irrelevant to the decision of whether to discontinue a product line because they will differ between alternatives. C.relevant to the decision of whether to discontinue the department. D.none of the above.
A
What factor related to manufacturing costs causes the difference between operating income computed using absorption costing and operating income computed using variable costing? A.Absorption costing "inventories" all fixed manufacturing costs. B.Absorption costing "inventories" all fixed manufacturing and period costs. C.Absorption costing expenses all costs, whether fixed or variable. D.Absorption costing "inventories" all direct manufacturing costs.
A
Which of the following capital budgeting methods that incorporate the time value of money calculates the investment's unique rate of return? A.Internal rate of return B.Payback period C.Net present value D.Accounting rate of return
A
Which of the following is not an advantage of decentralization? A.Achieving goal congruence B.Improved customer relations C.Frees top management's time D.Use of expert knowledge
A
Which of the following is not part of manufacturing overhead? A.Period costs, such as depreciation on office computers B.Indirect materials, such as machine lubricants C.Other indirect manufacturing costs, such as plant utilities D.Indirect labor, such as plant forklift operators' wages
A
Which of the following is not relevant when deciding whether or not to discontinue a product? A.Unavoidable fixed costs related to the product B.Avoidable fixed costs related to the product C.The product's contribution margin D.The effect of discontinuation on the sales of the company's other products.
A
Which of the following is true? A.Fixed costs stay constant in total over a wide range of activity levels. B.Manufacturing overhead is composed of only variable costs. C.Direct materials are considered to be fixed costs. D.The average cost per unit can be used for predicting total costs at many different output levels.
A
Within the relevant range, which of the following statements is true with respect to fixed costs per unit? A.They will increase as production decreases. B.They will increase as production increases. C.They will remain the same as production levels change. D.They will decrease as production decreases.
A
With ________, managers look at the size of the variances between actual results and budgeted amounts to determine which variances a manager should investigate. A.management by exception B.management by decision C.management by budget D.management by variance
A
"A measure of profitability computed by dividing the average annual operating income by the amount of the investment" is best described by which of the following terms? A.Accounting rate of return B.Discount rate C.Net present value D.Internal rate of return
A
A(n) ____________ variance is the result when actual revenues are higher than budgeted, or actual expenses are lower than budgeted. A.Favorable B.Cost C.Unfavorable D.Profit
A
Activity-based costing (ABC) focuses on ____________, rather than departments, as the fundamental cost objects, which results is less cost distortion. A.Activities B.Outputs C.Inputs D.Products
A
Direct Cost
A cost that can be traced to a cost object; a cost that is readily identifiable or associated with the cost object
Indirect Cost
A cost that related to the cost object but cannot be traced specifically to it; a cost that is jointly used or shared by more than one cost object
Decentralize
A process where companies split their operations into different operating segments
Profit Center
A responsibility center in which managers are responsible for both revenues and costs, and therefore profits.
Cost Center
A responsibility center in which managers are responsible for controlling costs
Manufacturing Overhead
All manufacturing costs other than direct materials and direct labor; also called factory overhead and indirect manufacturing cost.
Cost Object
Anything for which managers want to know the cost
A budget that is prepared for a different level of volume than originally anticipated in order to gain better insights is known as what? A.Variance budget B.Flexible budget C.Master budget D.Adjusted budget
B
A change in the number of hotel rooms that Caesars has would cause a/an ___________ proportional change in Caesars' total variable costs. A.Inverse B.Direct C.Indirect D.None of the above
B
A company is evaluating a variety of different capital investment opportunities. Due to limited funds, the company can only choose one project. What would be the best capital budgeting method for this company to use to select a project? A.Net present value method B.Profitability index C.Payback method D.Accounting rate of return method
B
Common fixed costs that are allocated between departments are generally A.direct fixed costs of the department. B.irrelevant to the decision of whether to discontinue the department. C.direct fixed costs of other departments. D.relevant to the decision of whether to discontinue the department.
B
Conversion costs consist of A.direct materials and direct labor. B.direct labor and manufacturing overhead. C.direct materials, direct labor, and manufacturing overhead. D.direct materials and manufacturing overhead.
B
Fixed costs that continue to exist even after a product line is discontinued are called A.avoidable fixed costs. B.unavoidable fixed costs. C.variable fixed costs. D.relevant fixed costs.
B
If both fixed expenses and the selling price per unit increase while variable costs per unit are unchanged, which of the following statements is true? A.Breakeven point in units increases. B.Breakeven point in units could increase, decrease, or remain the same. C.Breakeven point in units decreases. D.Breakeven point in units remains unchanged.
B
If the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant, which of the following statements is true? A.The contribution margin increases and the breakeven point increases. B.The contribution margin increases and the breakeven point decreases. C.The contribution margin decreases and the breakeven point increases. D.The contribution margin decreases and the breakeven point decreases.
B
If the variable cost per unit increases while the sale price per unit and total fixed costs remain constant, which of the following statements is true? A.Contribution margin ratio increases. B.Breakeven point in units increases. C.Breakeven point in units decreases. D.Breakeven point in units remains the same.
B
In making "sell as is" decisions, companies should consider all of the following EXCEPT for: A.Incremental revenues that would be earned by processing further B.Costs incurred up to the "sell as is" decision point C.Incremental costs that would be incurred by processing further D.All of the above should be considered.
B
On January 1, 2016, the newly renamed Julius Tower reopened, replacing the Roman Tower. In addition to renovating the existing rooms and suites in the former Roman Tower, 20 guest rooms were added to the tower. What type of responsibility center would the Julius Tower be considered? A.Investment B.Profit C.Cost D.Revenue
B
Return on investment (ROI) can be restated as which of the following? A.Sales margin / capital turnover B.Sales margin x capital turnover C.Residual income x sales margin D.Residual income / sales margin
B
The amount of manufacturing overhead recorded on a job cost record for a particular job is found by A.tracing manufacturing overhead to the job. B.allocating manufacturing overhead to the job. C.either tracing or allocating manufacturing overhead costs (management's choice). D.None of the answers listed is correct.
B
The formula for arriving at target cost is which of the following? A.Revenue minus variable cost B.Revenue minus desired profit C.Cost minus actual profit D.Revenue minus actual profit
B
The human resources department for a steel manufacturer may be classified as a(n) A.investment center. B.cost center. C.revenue center. D.profit center.
B
The number of repeat customers may be an example of measuring which perspective of the balanced scorecard? A.Financial B.Customer C.Learning and growth D.Internal business
B
The store manager at the Dick's Sporting Goods location in Columbus, Ohio, may be in charge of a(n) A.investment center. B.profit center. C.cost center. D.revenue center.
B
The ________ capital budgeting methods are based on cash flows, profitability, and the time value of money. A.accounting rate of return and internal rate of return B.net present value and internal rate of return C.payback and accounting rate of return D.payback and net present value
B
The ________ capital budgeting model considers both profitability and the time value of money. A.accounting rate of return B.net present value C.payback D.Both a and c are correct
B
Troy Company budgeted $12 million for customer service costs, but actually spent only $10 million. Which of the following statements is the best course of action for management to take in this instance? A.Management will investigate this $2 million unfavorable variance to try to identify and correct the problem. B.Management will investigate this $2 million favorable variance to ensure that the cost savings do not reflect skimping on customer service. C.Because this $2 million variance is favorable, management does not need to investigate further. D.Management should not investigate every major variance, especially an unfavorable variance.
B
What is the formula to calculate Caesars Entertainment Corporation's return on investment (ROI)? A.Sales / Total assets B.Operating income / Total assets C.Operating income / Sales D.Total assets / Sales
B
What is the promotion of products and services known as? A.Design B.Marketing C.Distribution D.Customer service
B
What will be the effect on the contribution margin ratio if the selling price per unit decreases and variable cost per unit remains the same? A.It will remain the same. B.It will decrease. C.It will increase. D.It is impossible to determine with the given information.
B
Which of the following are classified as manufacturing overhead? A.Direct materials and direct labor B.Indirect labor and indirect materials C.Factory rent and direct labor D.All materials
B
Which of the following capital budgeting methods that incorporate the time value of money calculates the investment's unique rate of return? A.Accounting rate of return B.Internal rate of return C.Net present value D.Payback period
B
Which of the following is a fixed cost? A.Direct materials cost B.Straight-line depreciation expense C.Sales commission expense D.Direct labor cost
B
Which of the following is an example of indirect labor in a manufacturing plant? A.Salespersons B.Plant managers C.Chief financial officer D.Machine operators
B
Which of the following is false? A.Outsourcing decisions should take into consideration the intended use of freed capacity. B.Outsourcing refers to having work performed overseas. C.Outsourcing decisions are often referred to as "make-or-buy" decisions. D.Contract manufacturers are manufacturers that make products for other companies.
B
Which of the following is not an example of an indirect cost incurred in manufacturing automobiles? A.Plant utilities B.Cost of the automobile engines C.Plant supervisor salary D.Machinery depreciation in the factory
B
Which of the following is not relevant when deciding whether or not to discontinue a product? A.The effect of discontinuation on the sales of the company's other products. B.Unavoidable fixed costs related to the product C.The product's contribution margin D.Avoidable fixed costs related to the product
B
Which of the following is false? A.Relevant information always differs among alternatives. B.Relevant information is always financial in nature. C.Sunk costs are never relevant to a decision. D.Relevant information always regards the future.
B
Which statement describes direct materials in a manufacturing setting? A.Direct materials cannot be separately and conveniently traced. B.Direct materials are used to determine total inventoriable product costs. C.Direct materials do not become part of the finished product. D.Direct materials are used to determine total manufacturing overhead.
B
Which type of variance causes operating income to be lower than the budgeted operating income? A.Neutral variance B.Unfavorable variance C.Reverse variance D.Favorable variance
B
With respect to total variable costs, which of the following statements is true? A.They will decrease as production increases within the relevant range. B.They will decrease as production decreases within the relevant range. C.They will increase as production decreases within the relevant range. D.They will remain the same as production levels change within the relevant range.
B
"Hours of employee training" would be a key performance indicator (KPI) for which of the four balanced scorecard perspectives? A.Financial B.Internal business C.Learning and growth D.Customer
C
A cost that can be traced to a cost object is known as a(n) A.product cost. B.period cost. C.direct cost. D.indirect cost.
C
A segment margin is the A.segment's contribution margin minus allocated fixed costs. B.same as the segment's contribution margin. C.segment's contribution margin minus direct fixed costs. D.segment's contribution margin minus all fixed costs.
C
All else being equal, if a company's variable expenses increase, A.its breakeven point will decrease. B.its contribution margin ratio will increase. C.its contribution margin ratio will decrease. D.there will be no effect on the breakeven point.
C
All fixed costs are listed ________ on a contribution margin income statement. A.above the gross profit line B.below the gross profit line C.below the contribution margin line D.above the contribution margin line
C
An example of direct labor would be which of the following? A.Salary of a production manager B.Wages of factory security C.Wages of assembly line personnel D.Salary of the vice-president of operations
C
Assuming the amount of manufacturing overhead overallocation or underallocation is not material, which account is adjusted at the end of the period? A.Sales Revenue B.Raw Materials Inventory C.Cost of Goods Sold D.Work in Process Inventory
C
A company's purchasing department negotiates all of the purchasing contracts for raw materials. Which variance is most useful in assessing the performance of the purchasing department? A.Direct materials quantity variance B.Direct labor rate variance C.Direct materials price variance D.Direct labor efficiency variance
C
Companies with production constraints and irrelevant fixed costs will be most profitable when they maximize production of the product with the highest A.demand for the product. B.sales price. C.contribution margin per unit of the constraint. D.contribution margin per unit.
C
Cost distortion is more likely to occur when A.all products require the same amount and type of processing activities. B.a company uses departmental overhead rates rather than a single plantwide overhead rate. C.departments incur different types of overhead and the products or jobs use the departments to a different extent. D.a company manufactures one type of product.
C
Fixed costs that are allocated among all departments are known as A.general fixed costs. B.relevant fixed costs. C.common fixed costs. D.direct fixed costs.
C
For a given level of sales, a company's operating leverage is defined as A.operating income / contribution margin. B.contribution margin / sales. C.contribution margin / operating income. D.sales revenue / contribution margin.
C
In ABC, how is the activity allocation rate computed? A.The total estimated activity allocation base is multiplied by the total estimated activity cost pool. B.You take the total estimated activity allocation base and subtract the total estimated total activity cost pool. C.The total estimated activity cost pool is divided by the total estimated activity allocation base. D.The total estimated activity allocation base is divided by the total estimated activity cost pool.
C
Keys to making short-term decisions include which of the following? A.Focusing on relevant revenues, costs, and profits B.Using a contribution margin approach that separates variable costs from fixed costs C.Both of the above D.None of the above
C
On the direct materials budget, the total quantity of direct materials to purchase is computed as A.units to be produced + desired end inventory of DM minus beginning inventory of DM. B.units to be produced minus desired end inventory of DM + beginning inventory of DM. C.quantity needed for production + desired end inventory of DM minus beginning inventory of DM. D.quantity needed for production minus desired end inventory of DM + beginning inventory DM.
C
Renting a scooter and paying $30 per day plus $.20 per mile driven is an example of what type of cost? A.Conversion cost B.Variable cost C.Mixed cost D.Fixed cost
C
The contribution margin is equal to A.sales minus operating expenses. B.sales minus cost of goods sold. C.sales minus variable expenses. D.sales minus fixed expenses.
C
The cost of lighting the factory would be classified as ________ when determining the cost of a manufactured product. A. a direct cost B. a period cost C. an indirect cost D. none of the above
C
The direct material price variance can be defined as which of the following? A.Standard quantity allowed x (Actual price - Standard price) B.Actual price x (Actual quantity used - Standard quantity allowed) C.Actual quantity purchased x (Actual price - Standard price) D.Standard price x (Actual quantity used - Standard quantity allowed)
C
The effect of a plant closing on employee morale is an example of which of the following? A.A variable cost B.A sunk cost C.A qualitative factor D.A quantitative factor
C
The first step in developing an ABC system is A.calculate an activity cost allocation rate for each activity. B.select an allocation base for each activity. C.identify the primary activities and estimate a total cost pool for each. D.allocate the costs to the cost object using the activity cost allocation rates.
C
The number of rework units may be an example of measuring which perspective of the balanced scorecard? A.Financial B.Customer C.Internal business D.Learning and growth
C
The production line at Morningstar Farms may be classified as a(n) A.investment center. B.revenue center. C.cost center. D.profit center.
C
The use of which of the following costing systems is most likely to reduce cost distortion to a minimum? A. Plantwide overhead rate B.Traditional costing system C.Activity-based costing D.Departmental overhead allocation rates
C
The "decision model that computes the difference between the present value of the investment's net cash inflows, using a desired rate of return, and the cost of the initial investment" is best described by which of the following terms? A.Discount rate B.Internal rate of return C.Net present value D.Accounting rate of return
C
The ________ capital budgeting methods are based on cash flows, profitability, and the time value of money. A.accounting rate of return and internal rate of return B.payback and net present value C.net present value and internal rate of return D.payback and accounting rate of return
C
The ________ capital budgeting model considers both profitability and the time value of money. A.accounting rate of return B.payback C.net present value D.Both a and c are correct
C
The ________ of the balanced scorecard focuses on determining if customers are satisfied. A.internal business perspective B.learning and growth perspective C.customer perspective D.financial perspective
C
To be effective, performance evaluation systems should do all of the following EXCEPT A.clearly communicate expectations. B.motivate segment managers. C.provide management with a club with which to beat employees if goals are not met. D.provide benchmarks that promote goal congruence and coordination between segments.
C
To evaluate the performance of a(an) ________, a top manager is responsible for revenues, costs, and the efficient use of the assets invested in the division. A.revenue center B.cost center C.investment center D.profit center
C
What is the formula to calculate Caesars' segment margin? A.Segment's contribution margin - allocated fixed costs B.Segment's contribution margin - all fixed costs C.Segment's contribution margin - direct fixed costs D.Segment's contribution margin - total costs
C
When calculating a departmental overhead rate, what should the numerator be? A.Total estimated amount of manufacturing overhead for the factory B.Actual quantity of the departmental allocation base used by the job C.Total estimated departmental overhead cost pool D.Total estimated amount of the departmental allocation base
C
Which of the following activities is not included in the value chain? A.Design B.Customer service C.Reporting D.Production
C
Which of the following costs is an example of a fixed cost? A.Delivery costs B.Sales commissions C.Salary of plant manager D.Direct materials
C
Which of the following financial performance measures can be used to compare potential projects of different sizes? A.Operating income B.Residual income C.ROI D.Sales revenue
C
Which of the following is a result of cost distortion? A. Accurate costing of all products B. Overcosting of all products C. Overcosting of some products and undercosting of other products D. Undercosting of all products
C
Which of the following is a sunk cost? A.Trade in value of old vehicle B.Purchase price of new vehicle C.Purchase price of vehicle to be traded in D.Operating costs for a new vehicle
C
Which of the following is not an example of an indirect cost incurred in manufacturing automobiles? A.Plant utilities B.Machinery depreciation in the factory C.Cost of the automobile engines D.Plant supervisor salary
C
Which of the following is the operating income an investment center generates before subtracting common fixed costs that are allocated to the center? A.Sales volume variance B.Return on investment (ROI) C.Segment margin D.Return on assets (ROA)
C
A company with a low operating leverage A.has relatively more risk than a company with high operating leverage. B.has an equal proportion of fixed and variable costs. C.has relatively more fixed costs than variable costs. D.has relatively more variable costs than fixed costs.
D
A graph of a variable cost starts at A.any point on the y-axis and slopes upwards. B.the origin and is horizontal. C.any point on the y-axis and is horizontal. D.the origin and slopes upwards.
D
All of the following describe an ABC system except A.ABC systems are more complex and costly than traditional costing systems. B.ABC systems can create more accurate product costs. C.ABC systems are used in both manufacturing and nonmanufacturing companies. D.ABC systems may only be used by service companies.
D
Companies often decentralize their operations by A.geographic area. B.product line. C.customer base. D.all of the above.
D
Costs that have already occurred and cannot be changed regardless of any future action taken are known as ________________. A.Fixed costs B.Breakeven costs C.Short-term costs D.Sunk costs
D
Four basic steps are used in an ABC system. List the proper order of these steps, which are currently scrambled below: a. Identify the primary activities and estimate a total cost pool for each. b. Allocate the costs to the cost object using the activity cost allocation rates. c. Select an allocation base for each activity. d. Calculate an activity cost allocation rate for each activity. A.c, a, b, d B.a, d, c, b C.b, a, c, d D.a, c, d, b
D
If Caesars were considering discontinuing a segment, which of the following questions should management consider? A.Does the segment have a positive contribution margin? B.Are there any fixed costs that can be avoided if we discontinue this segment? C.Will discontinuing the segment affect sales of the company's other products? D.All of the above
D
In a special sales order decision, the special price must exceed the variable cost of filling the order. In other words, the special order must have A.sunk costs. B.a negative contribution margin. C.opportunity costs. D.a positive contribution margin.
D
Molding and sanding each unit of product would most likely be classified as a ________ cost. A.product-level B.facility-level C.batch-level D.unit-level
D
Regarding activity-based costing systems, which of the following statements is true? A.ABC costing systems are less complex and, therefore, less costly than traditional systems. B.ABC costing systems can be used in manufacturing firms only. C.ABC systems accumulate overhead costs by departments. D.ABC costing systems have separate indirect cost allocation rates for each activity.
D
Testing ways to increase the strength of your product would be classified as which element of the value chain? A.Distribution B.Production C.Design D.Research and development
D
The direct material quantity variance can be defined as which of the following? A.Actual quantity purchased x (Actual price - Standard price) B.Standard quantity allowed x (Actual price - Standard price) C.Actual price x (Actual quantity used - Standard quantity allowed) D.Standard price x (Actual quantity used - Standard quantity allowed)
D
The entire product line at PepsiCo (such as the Pepsi Max product line) may be classified as a(n) A.revenue center. B.cost center. C.investment center. D.profit center.
D
The formula for arriving at target cost is which of the following? A.Revenue minus variable cost B.Revenue minus actual profit C.Cost minus actual profit D.Revenue minus desired profit
D
The internal rate of return is which of the following? A.The accounting rate of return minus 1% B.The amount of time it takes to recoup the initial investment C.The internal management's minimum required rate of return D.The interest rate that makes the NPV of an investment equal to zero
D
The number of new products developed may be an example of measuring which perspective of the balanced scorecard? A.Customer B.Financial C.Learning and growth D.Internal business
D
The time value of money depends on which of the following factors? A.Principal amount B.Number of periods C.Interest rate D.All of the above
D
The ________ capital budgeting method uses accrual accounting income. A.payback B.net present value C.internal rate of return D.accounting rate of return
D
To forecast total costs at a given level of production, management would use which of the following calculations? A.Total fixed cost + variable cost per unit B.Total fixed cost x total units predicted C.Average cost x total units predicted D.Total fixed cost + (variable cost per unit x total units predicted)
D
What will the use of departmental overhead rates generally result in? A.The use of separate cost allocation base for each activity in the factory B.The use of a single cost allocation base C.The use of a single overhead cost pool for the factory D.The use of a separate cost allocation base for each department in the factory
D
When calculating ROI and RI, management has to decide on the following measurement issues EXCEPT A.Should all assets be included? B.Should we use gross book value or net book value? C.Should the calculations use the year-end or average total assets? D.Should the calculations use budgeted or forecasted net income?
D
When resources are constrained, which of the following should be used to guide product mix decisions? A.The products' contribution margin B.The products' gross margin C.The products' gross margin per unit of constraint D.The products' contribution margin per unit of constraint
D
When resources are constrained, which of the following should be used to guide product mix decisions? A.The products' gross margin B.The products' contribution margin C.The products' gross margin per unit of constraint D.The products' contribution margin per unit of constraint
D
When using the income statement approach to finding breakeven, which of the following is true? A.fixed expenses + variable expenses + sales revenue = operating income B.fixed expenses + variable expenses minus sales revenue = operating income C.(variable expenses x number of units) minus fixed expenses = operating income D.sales revenue minus variable expenses minus fixed expenses = operating income
D
Which of the following is a disadvantage of decentralization that occurs when the organization struggles to achieve goal congruence? A.Management does not have time to concentrate on long-term strategic planning. B.Unit managers have decreased motivation and retention. C.Managers receive training and experience to allow advancement in the organization. D.Unit managers may not understand the big picture of the company.
D
Which of the following is a sunk cost? A.Operating costs for a new vehicle B.Purchase price of new vehicle C.Trade in value of old vehicle D.Purchase price of vehicle to be traded in
D
Which of the following is an example of a fixed cost for a manufacturer? A.Delivery Fuel Expense B.Income Taxes C.Machine Repair Expense D.Fire Insurance on buildings
D
Which of the following is an example of a period cost Caesars Palace® may have? A.Utility expense B.Salary expense C.Advertising expense D.All of the above
D
Which of the following is an example of direct labor? A.Wages of the CFO B.Wages of a managerial accountant C.Salary of the vice-president of operations D.Wages of a machine operator
D
Which of the following is an example of manufacturing overhead expense in a factory? A.Wages of machine operators B.Salaries of salespersons C.Wages of administrators in the corporate office D.Wages of factory maintenance personnel
D
Which of the following is false regarding choosing between two cost structures: A.Choose the lower operating leverage option when sales volume is expected to be lower than the indifference point. B.Choose the higher operating leverage option when sales volume is expected to be higher than the indifference point. C.The indifference point is the point at which costs under two options are the same. D.The indifference point is the point where total revenues equal total expenses.
D
Which of the following is false? A.The contribution margin is equal to sales revenue minus variable expenses. B.A contribution margin income statement is organized by cost behavior. C.Under absorption costing, the fluctuation of inventory levels will impact operating income, regardless of sales revenue. D.The operating income of manufacturers will always be the same, regardless of whether variable or absorption costing is used.
D
Which of the following is false? A.The difference between actual results and the master budget is called the master budget variance. B.The master budget variance can be split into two components: a volume variance and a flexible budget variance. C.The flexible budget is prepared using the actual volume achieved during the period. D.The volume variance is due to causes other than volume.
D
Which of the following is not an activity in the value chain? A.Design B.Customer Service C.Marketing D.Administration
D
Which of the following is the first step Caesars should take in computing and using activity-based costing? A.Calculate its activity cost allocation rates B.Select an allocation base for each activity C.Allocate manufacturing overhead to each activity D.Identify its primary activities
D
Which of the following is the most appropriate cost driver to use for slot machine maintenance cost? A.Number of hotel rooms and suites B.Number of table games C.Square feet of casino space D.Number of slot machines
D
Which of the following is true regarding variable costing? A.It is allowed by the IRS for tax preparation. B.It is allowed by GAAP for external reporting purposes. C.It treats variable MOH costs as period costs, rather than as product costs. D.It treats fixed MOH costs as period costs, rather than as product costs.
D
Which of the following is true? A.If manufacturing overhead is overallocated, then jobs will be undercosted. B.If manufacturing overhead is underallocated, then jobs will be overcosted. C.Both of the statements are true. D.None of the statements is true.
D
Which of the following is true? A.Favorable variances should always be interpreted as "good news" for the company. B.Management by exception means that managers investigate all unfavorable variances but not all favorable variances. C.Unfavorable variances should always be interpreted as "bad news" for the company. D.Favorable variances are variances that cause operating income to be higher than budgeted.
D
Which of the following is true? A.Fixed cost per unit increases when volume increases. B.Total fixed costs increase when volume increases. C.Total fixed costs decrease when volume increases. D.Fixed cost per unit decreases when volume increases.
D
Which of the following items could be an example of a cost object? A.An international plant B.A manufacturing plant C.The accounting department D.All of the above are examples of potential cost objects.
D
Which of the following may cause a favorable sales volume variance of the revenues? A.Actual net income for the subunit is greater than budgeted net income. B.Actual sales in dollars are greater than the master budget sales in dollars. C.Actual sales in dollars are less than the static budget sales in dollars. D.The flexible budget sales in dollars are greater than the static budget sales in dollars
D
Which of the following should be considered for special order decisions? A.Whether the special order will affect regular sales in the long run B.Whether the special price will be high enough to cover incremental costs of filling the order C.Whether excess capacity exists D.All of the listed choices should be considered in special order decisions.
D
Which of the following statements is true if the sales price per unit decreases while the variable cost per unit and total fixed costs remain constant? A.The contribution margin increases and the breakeven point decreases. B.The contribution margin decreases and the breakeven point decreases. C.The contribution margin increases and the breakeven point increases. D.The contribution margin decreases and the breakeven point increases.
D
Which statement describes direct materials in a manufacturing setting? A.Direct materials do not become part of the finished product. B.Direct materials are used to determine total manufacturing overhead. C.Direct materials cannot be separately and conveniently traced. D.Direct materials are used to determine total inventoriable product costs.
D
Which type of activity cost would Caesars' property taxes be classified as? A.Product-level B.Unit-level C.Batch-level D.Facility-level
D
Which variance is directly impacted if a worker drops the raw material during production and the raw material must be discarded? A.Direct labor rate variance B.Direct materials price variance C.Direct labor efficiency variance D.Direct materials quantity variance
D
Which would be a consideration for making special orders? A.If the order will affect regular sales in the long run B.If price will cover incremental costs of filling the order C.Available capacity to fill the order D.All of the above
D
T/F: If a manufacturer finds that the amount of manufacturing overhead allocated to a job is less than the actual amount of manufacturing overhead incurred, then the jobs are overcosted.
False
Avoidable Fixed Costs
Fixed costs that can be eliminated as a result of taking a particular course of action
Activity Based Costing (ABC)
Focusing on activities as the fundamental cost objects. The costs of those activities become building blocks for compiling the indirect costs of products, services, and customers.
Sales Margin
Operating income divided by sales revenue. The sales margin shows how much income is generated for every $1.00 of sales.
Return on Investment (ROI)
Operating income divided by total assets. The ROI measures the profitability of a division relative to the size of its assets.
Residual Income
Operating income minus the minimum acceptable operating income given the size of the division's assets. operating income - (target rate of return * total assets)
Capital Turnover
Sales revenue divided by total assets. The capital turnover shows how much sales revenue is generated with every $1.00 of assets.
Underallocated Manufacturing Overhead
The amount of manufacturing overhead allocated to jobs is less than the amount of manufacturing overhead costs actually incurred; this results in jobs being undercosted.
Segment Margin
The income resulting from subtracting only the direct fixed costs of a product line from its contribution margin. The segment margin contains no allocation of common fixed costs.
Direct Materials Price Variance
This variance tells managers how much of the total direct materials variance is due to paying a higher or lower price than expected for the direct materials it purchased. It is calculated as follows: AQP x (AP - SP).
Direct Materials Quantity Variance
This variance tells managers how much of the total direct materials variance is due to using a larger or smaller quantity of direct materials than expected. It is calculated as follows: SP x (AQU - SQA).
Direct Labor Rate Variance
This variance tells managers how much of the total labor variance is due to paying a higher or lower hourly wage rate than anticipated. It is calculated as follows: AH x (AR - SR).
Direct Labor Efficiency Variance
This variance tells managers how much of the total labor variance is due to using a greater or lesser amount of time than anticipated. It is calculated as follows: SR x (AH - SHA)
T/F: A quantity (efficiency) variance for production inputs (materials and labor) is the difference between the Actual Quantity (AQ) of input used and the standard quantity of input, multiplied by the standard price per unit of input.
True
T/F: Absorption costing creates an incentive to produce for inventory.
True
T/F: As compared to traditional volume-based costing using a single plantwide overhead rate, activity-based costing (ABC) is a more refined costing system that reduces cost distortion.
True
T/F: Batch-level activities and costs are incurred again each time a batch is produced.
True
T/F: CVP analysis helps managers prepare for and respond to economic changes, such as increasing costs and pressure to drop sales price.
True
T/F: Costs can be either direct or indirect, depending upon the cost object.
True
T/F: Direct costs can be traced to specific units.
True
T/F: If a company wants to determine a product's cost, it must assign both direct and indirect costs.
True
T/F: If all other factors are constant, any decrease in fixed costs will decrease the breakeven point.
True
T/F: If manufacturing overhead has been underallocated during the year, it means the jobs have been undercosted.
True
T/F: Indirect costs cannot be traced to the cost objects, so they are allocated.
True
T/F: It is easier to allocate indirect costs to the products that actually caused those costs if an ABC system is used rather than a traditional costing system.
True
T/F: Management by exception directs management's attention to a large variance between an actual and budget amount in a performance report.
True
T/F: Overallocated manufacturing overhead costs occur when the manufacturing overhead costs allocated are greater than the amount actually incurred.
True
T/F: Residual Income (RI) equals operating income less minimum acceptable income.
True
T/F: Revenue center performance reports are reports that list the variances between actual sales and budgeted sales.
True
T/F: The amount of overallocation or underallocation is typically corrected by adjusting Cost of Goods Sold on the income statement.
True
T/F: The margin of safety is the "cushion," or drop in sales, a company can absorb without incurring a loss.
True
T/F: The underallocation or overallocation of overhead is a direct result of using a predetermined manufacturing overhead rate rather than the actual manufacturing overhead rate.
True
T/F: Total variable costs change in direct proportion to changes in volume.
True
T/F: Two main benefits of ABC are (1) more accurate product cost information and (2) more detailed information on the costs of activities and the drivers of those costs.
True
T/F: Unit-level activities and costs are incurred for every single unit.
True
Cost Behavior
a behavior that describes how costs change as volume changes
Management by Exception
a management technique in which managers only investigate budget variances that are relatively large
Responsibility Center
a part of an organization whose manager is accountable for planning and controlling certain activities
Sunk Costs
a past cost that cannot be changed regardless of which future action is taken
Revenue Center
a responsibility center in which managers are responsible for generating revenue
Investment Center
a responsibility center in which managers are responsible for generating revenues, controlling costs, and efficiently managing the division's assets
Responsibility Accounting
a system for evaluating the performance of each responsibility center and its manager
Product-Level Activities
activities and costs incurred for a particular product, regardless of the number of units or batches of the product produced
Batch-Level Activities
activities and costs incurred for every batch, regardless of the number of units in the batch
Unit-Level Activities
activities and costs incurred for every unit produced
Facility-Level Activities
activities and costs incurred no matter how many units, batches, or products are produced in the plant
Other Indirect Manufacturing Costs
all manufacturing overhead costs aside from indirect materials and indirect labor
Product Line Income Statement
an income statement that shows the operating income of each product line, as well as the company as a whole
Operating Leverage Factor
at a given level of sales, the contribution margin divided by operating income; the operating leverage factor indicates the percentage change in operating income that will occur from a 1% change in sales volume Contribution margin/operating income
Outsourcing
contracting an outside company to produce a product or perform a service. outsourced work can be done domestically or overseas
Product Cost
costs incurred by manufacturers to produce their products or incurred by merchandisers to purchase their products. For external financial reporting, GAAP requires that these costs be assigned to inventory until the products are sold, at which point, they are expensed as cost of goods sold.
Period Costs
costs incurred by the company to operate the business that do not get treated as inventory, but rather are expensed immediately in the period in which they are incurred. These costs do not relate to manufacturing or purchasing product. Period costs are often called operating expenses or selling, general, and administrative expenses.
Variable Costs
costs that change in total in direct proportion to changes in volume
Fixed Costs
costs that stay constant in total despite wide changes in volume
Margin of Safety
excess of expected sales over breakeven sales; the drop in sales a company can absorb without incurring an operating loss
Relevant Information
expected future data that differs among alternatives
Unavoidable Fixed Costs
fixed costs that will continue to be incurred even if a particular course of action is taken
Offshoring
having work performed overseas, offshored work can be performed either by the company itself or by outsourcing the work to another company.
Indirect Labor
labor costs that are difficult to trace to specific products
Indirect Materials
materials whose costs are difficult to trace to specific products
Cost Distortion
overcosting some products while undercosting other products
Direct Materials
primary raw materials that become a physical part of a finished product and whose costs are traceable to the finished product
Performance Reports
reports that compare actual results against budgeted figures
Departmental Overhead Rates
separate manufacturing overhead rates established for each department
Overallocated Manufacturing Overhead
the amount of manufacturing overhead allocated to jobs is more than the amount of manufacturing overhead costs actually incurred; results in jobs being overcosted
Conversion Costs
the combination of direct labor and manufacturing overhead costs
Prime Costs
the combination of direct material and direct labor costs
Direct Labor
the cost of compensating employees who physically convert raw materials into the company's products; labor costs that are directly traceable to the finished product
Variance
the difference between actual figures and budgeted figures
Transfer Price
the price charged for the internal sale of product between two different divisions of the same company
Operating Leverage
the relative amount of fixed and variable costs that make up a firm's total costs
Trace
to assign a direct cost to a cost object
Allocate
to assign an indirect cost to a cost object
Activity-Based Management
using activity-based cost information to make decisions that increase profits while satisfying customers' needs
Plantwide Overhead Rate
when overhead is allocated to every product using the same manufacturing overhead rate
Goal Congruence
when the goals of the segment managers align with the goals of top management
NPV
~incorporates the time value of money and asset's net cash inflows over its entire life ~indicates whether the asset will earn the company's minimum required rate of return ~shows the excess of deficiency of the asset's present value of net cash inflows over the cost of the initial investment ~the profitability index should be computed for capital rationing decision when the assets require different initial investment
IRR
~incorporates the time value of money and the asset's net cash inflows over its entire life ~computes the project's unique rate of return ~no additional steps needed for capital rationing decisions when assets require different initial investments
Payback Period
~simple to compute ~focuses on the time it takes to recover the company's cash investment ~ignores any cash flows occurring after the payback period, including any residual value ~highlights risks of investments with longer cash recovery periods ~ignores the time value of money
ARR
~the only method that focuses on the accrual-based operating income from the investment, rather than cash flows ~shows the impact of the investment on operating income, which is important to financial statement users ~measures the average profitability of the asset over its entire life ~ignores the time value of money