ACCT116 Final review Questions

Constructing an action analysis report begins with the:

results of the first-stage allocation.

Product margin is a function of the:

*** product's sales and the direct and indirect costs that the product causes. Product margin is a function of the product's sales and the direct and indirect costs that the product causes.

Which of the following statements is correct? - Unfavorable cost variances always indicate bad performance. - Favorable cost variances always indicate good performance. - Both of the above statements are correct. - Neither of the above statements are correct.

***False- Neither of the above statements are correct. -Managers should not assume that unfavorable cost variances always indicate bad performance and that favorable cost variances always indicate good performance. Unfavorable cost variances may result from an increase in revenues (e.g., ingredient costs may be higher than expected because more meals were served in a restaurant than anticipated). And, favorable cost variances may result from a decrease in revenues (e.g., ingredient costs may be lower than expected because less meals were served in a restaurant than anticipated).

All of the following are examples of batch-level activities except:

**correct -Worker recreational facilities. - Setting up equipment. - Purchase order processing. - Clerical activity associated with processing purchase orders to produce an order for a standard product. Batch-level activities are activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in a batch. Further, the amount of resources consumed depends on the number of batches run rather than on the number of units in the batch. Worker recreational facilities relate to the organization as a whole rather than to specific batches and, as such, would not be considered a batch-level activity. On the other hand, purchase order processing, setting up equipment, and the clerical activities described are activities that are performed each time a batch of goods is handled or processed, and, as such, are batch-level activities.

Writing software for a new computer game at a software company that produces and sells computer games would be considered a:

**correct- product-level activity - organization-sustaining activity - unit-level activity - customer-level activity - batch-level activity Writing software for a new computer game is a product-level activity. It only has to be done once for the product and does not have to be repeated to make more units of the software.

Which of the following statements is not correct?

- A flexible budget allows managers to isolate activity variances and revenue and spending variances. incorrect - One of the common errors in preparing performance reports is to implicitly assume that all costs are variable. **** Incorrect: Comparing static planning budget costs to actual costs only makes sense if the cost is variable. - One of the common errors in preparing performance reports is to implicitly assume that all costs are fixed. Comparing static planning budget costs to actual costs only makes sense if the cost is fixed. If the cost isn't fixed, it needs to be adjusted for any change in activity that occurs during the period.

All of the statements are correct except: - cost formulas based on more than one cost driver are more accurate than the cost formulas based on just one cost driver. - flexible budgets can be prepared with up to two cost drivers. - when cost formulas are based on more than one cost driver, the variances will also be more accurate. - more than one cost driver might be needed to adequately explain all of the costs in an organization.

- cost formulas based on more than one cost driver are more accurate than the cost formulas based on just one cost driver. ****False: - flexible budgets can be prepared with up to two cost drivers. - when cost formulas are based on more than one cost driver, the variances will also be more accurate. - more than one cost driver might be needed to adequately explain all of the costs in an organization. Flexible budgets can be prepared with multiple cost drivers; they are not limited to two. Consider the electricity cost included in Rick's Hairstyling example in the textbook. Some of the cost is fixed since electricity is used even at night when the salon is closed. Some of the cost depends on the number of client-visits. And the rest of the cost depends on the number of hours the salon is open.

All of the statements are correct except:

-A flexible budget performance report separates the effects of how well prices were controlled and operations were managed. - Flexible budget performance reports provide more useful information to managers than a simple comparison of budgeted to actual results. - To generate a favorable variance for net operating income in a business that serves customers managers must take actions to increase client-visits. *****False: To generate a favorable overall revenue and spending variance, managers must take actions to protest selling prices. To generate a favorable overall revenue and spending variance, managers must take actions to protect selling prices, increase operating efficiency, and reduce the prices of inputs.

All of the following statements are correct except:

-The simplest absorption costing systems assign manufacturing overhead costs to products using a single factory-wide predetermined overhead rate. - activity-based costing information is used for decision-making. - activity-based costing assign manufacturing overhead costs to products using a predetermined overhead rate for each activity cost pool. ****-False: activity-based costing can also be used to develop product costs for external financial reports. Activity-based costing information is used for internal decision-making. A modified form of activity-based costing can also be used to develop product costs for external financial reports.

Armco, Inc., produces and sells five products. Which of the following costs would typically be a traceable fixed cost of a product?

Advertising costs of the product

All of the following statements are correct except? - although ROI is widely used in evaluating performance, it should not be included in a balanced scorecard. - Performance measures used in the balanced scorecard approach tend to fall into four groups: financial, customer, internal business processes, and learning and growth. - a balanced scorecard consists of an integrated set of performance measures that are derived from and support a company's strategy. - under the balanced scorecard approach, top management translates its strategy into performance measures that employees can understand and influence.

All of the following statements are correct except? *****FALSE**---although ROI is widely used in evaluating performance, it should not be included in a balanced scorecard. - Performance measures used in the balanced scorecard approach tend to fall into four groups: financial, customer, internal business processes, and learning and growth. - a balanced scorecard consists of an integrated set of performance measures that are derived from and support a company's strategy. - under the balanced scorecard approach, top management translates its strategy into performance measures that employees can understand and influence. =ROI is best used as part of a balanced scorecard, which can provide concrete guidance to managers, making it more likely that their actions are consistent with the company's strategy and reducing the likelihood that they will boost short-run performance at the expense of long-term performance.

The entry to record an unfavorable labor efficiency and a favorable labor rate variance includes a:

Debit to Work in Process, a debit to Labor Efficiency Variance, a credit to Labor Rate Variance, and a credit to Wages Payable.

When there are batch-level or product-level costs, in comparison to a traditional cost system, an activity-based costing system ordinarily will shift costs from:

High-volume to low-volume products. --Under traditional costing methods, overhead costs are allocated to products on the basis of some measure of volume such as direct labor-hours or machine-hours. This results in most of the overhead cost being allocated to high-volume products. In contrast, under activity-based costing, some overhead costs are allocated on the basis of batch-level or product-level activities. This change in allocation bases results in shifting overhead costs from the high-volume products to low-volume products.

All of the following statements are incorrect except:

Instead of arbitrarily assigning various indirect costs to high-volume products, an activity-based costing system more accurately assigns these costs to the company's high-volume and low-volume products. --Because an activity-based costing system contains both batch-level and product-level activity cost pools, the unit product costs under activity-based costing follow the usual pattern in which overhead costs are shifted from the high-volume to the low-volume product. Instead of arbitrarily assigning various indirect costs to high-volume products, an activity-based costing system more accurately assigns these costs to the company's high-volume and low-volume products.

The five columns on a "Performance Report Combining Activity Variances with Revenue and Spending Variances" should be ordered as follows:

Planning Budget, Activity Variances, Flexible Budget, Revenue and Spending Variances, and Actual Results.

Pedgrift Company uses an accounting system that charges costs to the manager who has been delegated the authority to make decisions concerning the costs. For example, if the sales manager accepts a rush order that will result in higher than normal shipping costs, these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager. This type of accounting system is known as:

Responsibility accounting --is a system of accountability in which managers are held responsible for those items of revenue and cost - and only those items - over which the manager can exert significant control. The managers are held responsible for differences between budgeted goals and actual results.

A segment of a business responsible for only revenues and expenses would be referred to as:

a profit center.

An activity variance is the difference between:

a revenue or cost item in the static planning budget and the same item in the flexible budget.

Ease of adjustment codes are used to identify the costs that:

adjust automatically to changes in activity, adjust in response to changes in activity with management action, and adjust to changes in activity only with a great deal of difficulty and management action. --Ease of adjustment codes Costs are coded as Green, Yellow, or Red—depending on how easily the cost could be adjusted to changes in activity. "Green" costs adjust automatically to changes in activity. "Yellow" costs could be adjusted in response to changes in activity, but such adjustments require management action; the adjustment is not automatic. "Red" costs could be adjusted to changes in activity only with a great deal of difficulty and would require management action.

The manufacturing overhead budget lists:

all costs of production other than direct materials and direct labor.

Perhaps the most common errors in performance evaluation are implicitly assuming that:

all revenues and costs are fixed or assuming that they are all strictly variable.

The second step in implementing an ABC system is to:

assign overhead costs to activity cost pools.

The first-stage allocation in an ABC system is the process of:

assigning functionally organized overhead costs derived from a company's general ledger to the activity cost pools.

The budgeted balance sheet is developed using data from the:

balance sheet from the beginning of the budget period and data contained in the various schedules.

The cash budget provides necessary input data for the preparation of the:

budgeted balance sheet.

The budget that shows the company's planned profit and serves as a benchmark against which subsequent performance can be measured is the:

budgeted income statement.

Assuming that there is an unfavorable price variance, the entry to record the purchase of materials on account includes a:

debit to Raw Materials, a debit to Materials Price Variance, and a credit to Accounts Payable.

If the average selling price is greater than expected, the revenue variance is:

labeled as favorable.

If the actual cost incurred is greater than what the cost should have been as set forth in the flexible budget, the variance is:

labeled as unfavorable. If the actual cost incurred is greater than what the cost should have been as set forth in the flexible budget, the variance is labeled as unfavorable.

The budget or schedule that provides the required data for the preparation of the direct materials budget is the:

production budget.

The direct labor budget shows the direct labor-hours required to satisfy the:

production budget.

The starting point for the preparation of a master budget is the:

sales budget.

A budget that is prepared with the full cooperation and participation of managers at all levels is referred to as a:

self-imposed budget.

All of the following statements are correct except? - incentive compensation for employees, such as bonuses, should not be tied to balanced scorecard performance measures. - operating measures such as delivery cycle time may be included in a balanced scorecard. - top managers who translate strategy into performance measures that employees can understand and influence are following a balanced scorecard approach. - financial measures such as residual income may be included in a balanced scorecard.

→ incentive compensation for employees, such as bonuses, should not be tied to balanced scorecard performance measures. Incentive compensation for employees, such as bonuses, can, and probably should, be tied to balanced scorecard performance measures.

If a segment has a negative segment margin:

→ the segment is not covering its own traceable costs, but it still may be of benefit to the company A negative segment margin means that a segment is not covering its own traceable costs. However, the segment may still be of value to the company if it helps sell other products.