BSAD 530 (Advanced Managerial Accounting) Exam 3
Shasta Company plants to double its profits in 5 years. This is an example of a A. long term objective B. short term objective C. tactic D. sales forecast
A
The direct materials budget DIRECTLY relies on the A. production budget B. sales budget C. direct labor budget D. merchandise purchase budget
A
What kind of cost is gasoline when planning a trip and deciding to drive your car or take the train? A. relevant cost B. irrelevant cost C. sunk cost
A
What's added to the budgeted unit sales on a production budget to obtain the total number of units to be produced? A. budgeted ending inventory B. actual ending inventory C. budgeted beginning inventory D. actual beginning inventory
A
When a company is operating at full capacity A. a special order analysis includes the opportunity cost of lost sales B. a special order analysis is the same as if there's excess capacity C. a special order should never be considered or accepted D. a special order must consider the fixed manufacturing overhead costs
A
When making a one time special order decision, a company can ignore fixed overhead because A. the cost is not avoidable B. the cost is avoidable C. the cost cannot be determined D. none of the above
A
When resources are constrained, managers should prioritize products in order to maximize A. contribution margin per unit of the constrained resource B. sales volume C. opportunity cost D. fixed cost per unit of the constrained resource
A
When there's excess capacity, an analysis of a special order A. excludes fixed costs B. should include a sales price that's the same as the regular selling price C. includes opportunity costs D. isn't required because all special orders should be accepted
A
Which budget shows all costs of production other than direct materials and direct labor? A. manufacturing overhead budget B. cash budget C. merchandise purchases budget D. ending finished goods inventory budget
A
Which of the following is NOT a qualitative factor to consider in a make or buy decision? A. the variable production costs of the product B. the quality of the purchased product C. the reliability of the supplier
A
Which of the following is NOT a way to determine the sales forecast? A. long term objectives for R&D B. actual sales from prior periods C. planned marketing activities D. research on industry trends
A
Which of the following is NOT considered an operating budget? A. cash budget B. budgeted income statement C. selling and administrative expense budget D. raw materials purchase budget
A
Which of the following is NOT included on a budgeted cash payments budget? A. production in units B. depreciation C. cash paid for selling and administrative expenses D. payments for raw materials
A
What order should you produce products in when there is a constrained resource?
A company should fill the demand for the product with the highest CM per unit first
Abba Inc. is considering dropping a segment. During the prior year, the segment had sales of $207,000 and a contribution margin of $124,000. Fixed expenses consist of salaries $60,000 rent $50,000 advertising $20,000 administrative $35,000 total fixed expenses $165,000 The segment manager's $60,000 salary is a direct fixed cost as is the advertising. Of the administrative expenses, $10,000 is a direct fixed cost and the rest is part of common fixed costs. The rent expense is allocated to segments based on sales and represents a share of the total cost for building. If this segment were dropped, what would happen to the company's overall net operating income? A. overall net income would decrease by $34,000 B. overall net income would decrease by $124,000 C. overall net income would increase by $16,000 D. overall net income would increase by $41,000
A (the company would lose the $124,000 contribution margin. $90,000 of the fixed costs (salary, advertising and $10,000 of administrative) and direct fixed costs, so net income would decrease by $34,000)
Continuous/Perpetual Budget
A 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed
What is the receivables turnover for this company?
3.4 times.
Studio Films is considering the purchase of some new film equipment that costs $150,000. It has a 5 year useful life with no salvage value. The new equipment is expected to increase revenues by $115,000 annually. Annual incremental cash operating expenses are expected to be $40,000. The simple rate of return of the equipment is _______%.
30 $115,000 - $40,000 - $30,000 ($150,000/5) depreciation - $45,000 net operating income/$150,000 initial investment = 30%
Self-Imposed/Participative Budget
A budget that is prepared with the full cooperation and participation of managers at all levels
Tilly's Travel purchased a new tour bus at a cost of $320,000. The bus is expected to increase cash inflows over the next 5 years as follows: $98,000 in year 1, $87,000 in year 2, $74,500 in year 3, $60,000 in year 4, and $59,000 in year 5. The payback period for the new bus is in years.
4
Tilly's Travels purchased a new tour bus at a cost of $320,000. The bus is expected to increase cash inflows overt the next 5 years as follows:$98,000 in year 1; $87,500 in year 2; $74,500 in year 3; $60,000 in year 4; and $59,000 in year 5. The payback period for the new bus is _____ years.
4
ToolTime's total labor variance is:
$1,030F.
If $1,000 is invested at 7% interest, the total value of the investment at the end of one year will be $___.
$1,070
Sniffifles Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,000. To achieve a target profit of $930,000, Sniffles' sales rounded to the nearest dollar must be:
$1,520,000
if the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000, what is the total number of customer orders?
$1,700
TootTime's labor quantity variance is:
$1,800F.
If a gain of $10,000 is incurred in selling (for cash) office equipment having a book value of $100,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is:
$110,000.
Edison corporation's variable manufacturing overhead rate is $5.00 per direct labor-hour. Total budgeted fixed overhead is $25,000 per month. The $25,000 per month includes $7,000 in depreciation expense. total budgeted direct labor-hours for the month of july is 20,000. Budgeted cash disbursements for manufacturing overhead for July equals
$118,000 Variable overhead(20,000 x $5.00) $100,000 + fixed overhead $25,000 - noncash (depreciation)expenses $7,000= $118,000
Davidson Corporation's master budget shows expected direct labor cost of $90,000 for the month of May. During May, the company's expected sales equal 12,000 units and expected production is 15,000 units. If each unit requires 1/2 hour of direct labor, the budget direct labor rate is ___ per hour.
$12 Budgeted production = 15,000 units x 1/2 hour = 7,500 required labor hours $90,000 / 7,500 = $12 per hour
Davidson Corp's master budget shows expected direct labor cost of $90,000 for the month of May. During May, the company's expected sales equal 12,000 units and expected production is 15,000 units. If each unit requires 1/2 hour of direct labor, the budgeted direct labor rate is _____ per hour
$12 (15,000 X 1/2 hour or 7,500 required labor hours. 90,000/7,500)
Davidson corporation's master budget shows expected direct labor cost of$90,000 for the month of may. during may, the company's expected sales equal 12,000 units and expected production is 15,000 units. if each unit requires 1/2 hour of direct labor, the budgeted direct labor rate is $______ per hour
$12 Budgeted production = 15,000 units x 1/2 hour of 7,500 required labor hours. $90,000/7,500=$12 per hour
Ganter Company had the following department information about physical units and percentage of completion:
$120,000.
Pastoria Enterprises has scheduled raw material purchases of $100,000 in January, $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February
$122,500 ((130,000 X 75%) 97,500 + Jan. purchases (100,000 X 25%) 25,000)
S&P Enterprises has scheduled direct material purchases of $100,000 in January,$130,000 in February and $150,000 in march. the company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. calculate the expected cash disbursements for the month of february
$122,500 february is the month after january so, the company will be paying for 75% of february purchases + 25% of january purchases.: february purchases ($130,000 x75%)$97,500+ january purchases($100,000 x 25%) 25,000= $122,500
Edison Corp's variable manufacturing overhead rate is $5 per direct labor hour. Budgeted direct labor cost is $20 per hour. Total budgeted fixed overhead is $25,000 per month. Total budgeted direct labor hours for the month of July is 20,000. Total budgeted manufacturing overhead for July is
$125,000 ((20,000 X 5) 100,000 + 25,000)
Sloan Inc. recently invested in a project with a 3-year life span. The net present value was $3,000 and annual cash inflows were $7,000 for year 1; $8,000 for year 2; and $9,000 for year 3. The initial investment for the project, assuming a 15% required rate of return, was:
$15,060.
Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $ ________.
$168,000
As of December 31, 2008, Stand Still Industries had $1,500 of raw materials inventory. At the beginning of 2008, there was $1,200 of materials on hand. During the year, the company purchased $183,00 of materials; however, it paid for only $175,500. How much inventory was requisitioned for use on jobs during 2008?
$182,700
An investment of $2,000 at 7% compound interest will be worth $___ at the end of 3 years.
$2,450 (2,000*(1+.07)^3)
S&P's direct material cost is $6.50 per unit. The direct labor rate is $30 per hour and each unit takes 1/2 hour to produce. Variable manufacturing overhead is $2.75 per unit and total budgeted fixed overhead is $63,000. A sales commission of $5 is paid on each unit. If S&P expects to produce 9,000 units and sell 7,000 units, the total budgeted cost of goods sold for the year is
$218,750 (6.50 + 15 (30 X 1/2) + 2.75 + 7 (63,000/9,000)= 31.25 X 7,000)
Madison Corporation's expected beginning balance is $35,000. Cash collections are budgeted at $50,000 and cash disbursements are estimated to be $80,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month.
$25,000 $35,000 + $50,000 - $5,000. Since they can borrow in increments of $10,000 they must borrow $20,000 to meet or exceed the minimum cash balance, making the ending balance $25,000.
Madison Corp's expected beginning cash balance for the month is $35,000. The company expects to collect $50,000 from customers. Cash disbursements are estimated to be $80,000. Management wants to maintain a minimum cash balance of $20,000. the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month
$25,000 (35,000 + 50,000 - 80,000= 5,000 + 20,000)
Building Blocks Co. is considering the purchase of a new specialty saw. The saw has a useful life of 10 years, but the salvage value is unknown. The net present value excluding the salvage value of the saw is negative $13,950. If the present value factor is 0.558, then the salvage value must be $----- in order to make the investment acceptable.
$25000 $13,950 divided by 0.558 = $25,000. Net preset value without salvage value of ($13,950) + Net present value of salvage value of $13,950 + Net present value of $0, which means return is equal to the required rate of return.
Shonda's Shoes sell for $95 per pair. If Shonda must sell 284 pairs of shoes to break-even, sales dollars needed to break-even equals...
$26,980
Given an interest rate of 8% compounded annually, $5,000 to be received four years from today is equal to:
$3,675 today
A company has total sales of $1,430,000. Fixed expenses are $657,000 and the contribution margin ratio is 67%. Company profit (loss) is:
$301,100
The net income reported on the income statement for the current year was $220,000. Depreciation was $50,000. Account receivable and inventories decreased by $10,000 and $30,000, respectively. Prepaid expenses and accounts payable increased, respectively by $1,000 and $8,000. How much cash was provided by operating activities?
$317,000.
Sander Technologies is considering a research project. If successful, the project is expected to lead to sales totaling $60,000 annually. The initial cost of the research is expected to be $331,500. The present value factor used to calculate the internal rate of return is:
$331,500/$60,000 = 5.525
Chrissy's cupcakes has $832,000 in sales and $265,000 in fixed expenses. Given a contribution margin ratio of 72%, Chrissy's profit (loss) is:
$334,040
One of Jetson Company's activity cost pools is inspecting, with estimated overhead of $100,000. Jetson produces throw rugs (700 inspections) and area rugs (1,300 inspections). How much of the inspecting cost pool should be assigned to throw rugs?
$35,000.
A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, net operating income is:
$36,000
A company assigns overhead using a plan wide rate. If total estimated manufacturing overhead is $900,000 and the total activity is 30,000 machine hours, the overhead cost assigned to a product using 12,000 machine hours is:
$360,000 [($900k/30k) x 12K]
Daisy's Dolls sold 30,000 dolls this year for $40 each. Each doll's variable cost was $19. If Daisy incurred $250,000 of fixed expenses, net operating income for the year is:
$380,000
Given an interest rate of 9% compounded annually, $4,000 to be received three years from today is equal to $_____ today.
$4,000 x 0.772 (PV of a dollar for 3 years at 9%) = $3,088
The present value of a 15-year, 8% loan with annual payments of $4,000 made at the end of each year is $_____.
$4,000 x 8,559 = $34, 236
Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is...
$55
Wilton Company reported net income of $40,000 for the year. During the year, accounts receivable decreased by $7,000, accounts payable increased by $3,000 and depreciation expense of $5,00 was recorded. Net cash provided by operating activities for the year is:
$55,000.
Calculate the present value of a 10-year, 6% loan with annual payments of $7,500 made at the end of each year.
$55,200 ($7,500*7.360)
Seth's Speakers had actual sales of $1,630,000. If break-even sales equals $935,000, Seth's margin of safety in dollars is:
$695,000
For Dye Company, at a sales level of 5,000 units, sales is $75,000, variable expenses total $40,000, and fixed expenses are $21,000. What is the contribution margin per unit?
$7.00.
Goodstone Tire Corporation sells tires for $100 each. Per unit costs associated with producing and selling the tires are: Direct Materials $35 Direct Labor $10 Factory Overhead $20 Selling and Administrative $15 The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 10,000 tires for $70 each. The order would not require any selling or administrative costs. The purchaser will pay the shipping costs, but Goodstone will have to pay a $100,000 inspection fee in order to be able to make the foreign sale. Accepting the special order will not affect current sales or production. What effect would accepting the special order have on Goodstone's net operating income?
$70,000 increase The revenue per tire is $70 and the cost is $63 (direct materials, direct labor, variable overhead and inspection fee of $10 ($100,000/10,000) tires) so each tire will generate $7 in net operating income.
ToolTime's labor price variance is:
$770U.
Delis Delight has fixed cost per year of $312,000 and a contribution margin ratio of 40%. Calculate the sales dollars needed to break even.
$780,000
Johnson Corp. has an 8% required rate of return. It's considering a project that would provide annual cost savings of $20,000 for 5 years. The most that Johnson would be willing to spend on this project is:
$79,860.
Spot Company's master budget shows expected sales of 10,000 units and expected production of 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15.00 per hour. Calculate the expected total direct labor cost for the month of March:
$82,000 Units to be produced x time per unit x rate per hour = 11,000 x 1/2 x $15 = 82,500
Sperling Company's master budget shows expected sales of 10,000 units and expected production 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15 per hour. Calculate the expected total direct labor cost for the month of March
$82,500 (11,000 X 1/2 X $15)
Capital budgeting decisions include:
(1) Acquiring a new facility to increase capacity (2) Purchasing new equipment to reduce cost (3) Choosing to lease or buy new equipment (4) Deciding to replace old equipment (5) Determining which equipment to purchase among available alternatives
The computation of a capital budgeting project's incremental net income includes:
(1) Annual depreciation expense (2) One-time expenses (3) Annual revenues
When making a capital budgeting decision, it is most useful to calculate the payback period:
(1) As part of the screening process (2) If a company is "cash poor"
Common errors in preparing performance reports include:
(1) Assuming all costs are variable (2) Assuming all costs are fixed
Budgets:
(1) Budgets communicate management's plans throughout the organization. (2) Budgets force managers to think about and plan for the future. In the absence of the necessity to prepare a budget, many managers would spend all of their time dealing with day-to-day emergencies. (3) The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively. (4) The budgeting process can uncover potential bottlenecks before they occur. (5) Budgets coordinate the activities of the entire organization by integrating the plans of its various parts. Budgeting helps to ensure that everyone in the organization is pulling in the same direction. (5) Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.
When a static planning budget is compared to actual results:
(1) Changes in costs are expected due to changes in activity (2) Increases or decreases in net income are not adequately explained
Calculate the steps for finding net present value
(1) Determine the discount rate using the minimum required return (2) Find the present value factors using the discount rate & timing of each cash flow (3) Multiply all project cash flows by the present value factor (4) Find the difference between the present value of cash inflows and cash outflows
Which of the following budgets are needed to calculate unit production?
(1) Direct Materials budget (2) Direct Labor budget (3 Manufacturing OverHead budget
The payback method:
(1) Does not consider time value of money (2) Is not a true measure of investment profitability (3) Ignores all cash flows that occur after the payback period
To calculate raw materials to be purchased on the budget, add the desired (1)___ inventory of raw materials to the raw materials needed based on the (2)___ budget and (3)___ the beginning inventory of raw materials to arrive at raw materials to be purchased
(1) Ending (2) Production (3) Deduct
Risks of not knowing in advance how much labor time will be needed throughout the budget period includes:
(1) Erratic layoffs (2) Labor shortages (3) Low employee morale
The simple rate of return:
(1) Fluctuates year to year along with fluctuations in revenue and expense (2) Ignores the time value of money
A manager with a current ROI of 22% has been offered a project with a positive net present value and a simple rate of return of 18%. Which of the following statements are true:
(1) If the manager is evaluated based on ROI, he will probably reject the project (2) The company will want him to accept the project
Typical cash inflows from a project include:
(1) Increased revenue (2) Released working capital (3) Salvage value
Self-imposed budgets have a number of advantages:
(1) Individuals at all levels of the organization are recognized as members of the team whose views and judgments are valued by top management. (2) Budget estimates prepared by front-line managers are often more accurate and reliable than estimates prepared by top managers who have less intimate knowledge of markets and day-to-day operations. (3) Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above. Self-imposed budgets create commitment. (4) A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet. With a self-imposed budget, this claim cannot be made.
The (1)____ rate of return focuses on cash flows, while (2)____ rate of return focuses on revenues and expenses
(1) Internal (2) Simple
The receipts section:
(1) Lists all of the cash inflows except from financing, expected from the budgeted period (2) Generally, the major source of receipts are from sales
Self-imposed budget limitations
(1) Lower-level managers may make suboptimal budgeting recommendations if they lack the broad strategic perspective possessed by top-level managers (2) May allow lower-level managers to create too much budgetary slack
High achievable budget targets:
(1) May help build the manager's confidence (2) May generate greater management commitment to the budget (3) Are used in most companies
Which of the following are the most common measurements used to rank acceptable investment projects?
(1) Net Present Value (2) Internal rate of return
A cost center performance report does not include:
(1) Net operating income (2) Revenue
Two capital budgeting approaches that use discounted cash flows are the (1)_____ value method and the (2)___ of return method
(1) Net present (2) Internal rate
Which of the following budgets are directly based on information from the sales budget?
(1) Production budget (2) Selling and administrative expense budget
Conducting a postaudit:
(1) Provides an opportunity to cut loses on floundering projects (2) Provides an opportunity to reinforce and possible expand successful projects (3) Flags any manager's attempts to inflate benefits or downplay costs in a project proposal
Preference decisions are also called:
(1) Ranking decisions (2) Rationing decisions
Which of the following is needed to calculate raw materials to be purchased on the direct materials budget?
(1) Raw materials required per unit (2) Beginning inventory of raw materials
The two broad categories into which capital budgeting decisions fall are (1)____ and (2)_____ decisions
(1) Screening (2) Preference
The disbursements section:
(1) Summarizes all cash payments that are planned for the budgeted period (2) These payments include equipment purchases, dividends, raw material purchases, direct labor payments, manufacturing overhead costs
Which of the following statements are true?
(1) The cost of capital may be used to screen out undesirable projects (2) When the net present value method is used, the discount rate equals the hurdle rate (3) When using the internal rate of return method, the cost of capital is used as the hurdle rate
The net present value of a project is:
(1) The difference between the present value of cash inflows and cash outflows for a project (2) Used in determining whether or not a project is an acceptable capital investment
Which of the following statements are true?
(1) The more frequently interest is compounded, the faster the balance grows (2) Compound interest means that interest is paid on interest
The cash budget is composed of four major sections:
(1) The receipts section. (2)The disbursements section. (3) The cash excess or deficiency section. (4) The financing section.
Match the following results with the discrepancies due to 4,000 units of actual activity vs 2,500 planned units
(1) Unfavorable wages = increase in employee hours to manufacture additional units (2) Favorable revenue = more units were sold than expected (3) Unfavorable utilities = plant was in operation for an extra shift each week for increased production (4) No change = mortgage payment for plant
If the actual level of activity differs from the level of activity used on the planning budget:
(1) Variable costs may be lower than expected (2) Variable costs may be higher than expected
Dollar Sales to attain a target profit =
(TP + Fixed expenses) / CM Ratio
Dollar Sales to attain a target profit=
(TP + Fixed expenses) / CM Ratio
Unit sales to attain the target profit =
(Target Profit + Fixed Expenses) / Unit CM
Unit sales to attain the target profit=
(Target Profit + Fixed Expenses) / Unit CM
Dollar Sales for company to break even= (when company is segmented)
(Traceable FE + Common FE) / Overall CM Ratio
the equation used to calc the simple rate of return
(annual incremental net op income)/(initial investment)
The required sales in units to achieve a target net income is:
(fixed cost + target net income) divided by contribution margin per unit.
equation used to calculate the payback period when annual net cash inflow is the same every yr
(investment required)/(annual net cash inflow)
Limitations of activity based costing (ABC):
- ABC requires substantial resources - Managers and employees may resist the change to ABC -ABC procedures produce numbers that do not match traditional costing
If managers allocate organization-sustaining & unused capacity costs to products
- Costs will be overstated - Incorrect decisions may be made
ABC does NOT conform to GAAP because it:
- Includes some non manufacturing costs - Excludes some manufacturing costs
ABC is NOT for external reporting because:
- It is difficult to make changes in the existing accounting system - ABC does not comply with GAAP - External reports are less detailed than internal reporting
in abc the greater the number of activities, the:
- More accurate the costs are likely to be - More costly the system will be to design
An activity based costing system:
- Requires substantial resources - Produces different numbers than a traditional system -Is costly to maintain
Customer level activities include:
- Sales calls - Mailing catalogs
Activities that could be combined into one batch-level activity:
- The number of customer orders - The number of shipped orders
vertical integration disadvantages
- companys may fail to take advantage of suppliers who can create the economies of scale advantage by pooling demand from numerous companies - while the economies of scale factor can be appealing a company must be careful to retain control over activities that are essential to maintaining its competitive position
when making a capital budgeting decision, it is most useful to calc the period:
- if a company is cash poor -as part of the screening process
Vertical Integration Advantages
- smoother flow of parts and materials - better quality control - realize profits
Different questions a manager could ask?
- what is the per unit dollar advantage (or dis) of purchasing from the outside supplier? - what is the total cost if you make the product? - what is the net income if you make the product in house compared to outsourcing production
ABC provides managers with information that affects:
-Both fixed and variable costs
Which of the following is the most liquid asset?
-Cash
Cash outflows for financing activities include
-Cash disbursed to repay principle on long-term debt -Cash disbursed to repay principle on short-term debt -Dividends paid to common stockholders
EBIT stands for
-Earnings before interest and taxes
Always invest based on a friend's advice without looking at the 10-K
-False
EBITDA will always be a smaller number than EBIT
-False
Every organization should use a budget as a tool for managing
-False
Factoring is when you sell your accounts payable to a third party
-False
Fiscal year-ends are always December 31
-False
Indirect costs are the costs that can be directly linked to the product such as component costs and manufacturing labor
-False
Standard costs are used in tax accounting to determine amortization of equipment
-False
The GASB makes accounting rules for small businesses
-False
The SEC loves it when companies get creative in their financial filings
-False
The amount a business holds in "equity" is in cash in its bank account
-False
The cash method of accounting is the most commonly used method among large corporations.
-False
The cash method of accounting recognizes accounts receivable and accounts payable
-False
The indirect method is the most user-friendly method for creating a cash flow statement
-False
The value of stock on the balance sheet shifts with the market price of the stock
-False
Which step in the management decision making process: make the decision based on the info gathered in the previous step
4
ABC costing only charges products for the cost of the capacity used because:
-It results in a more stable unit product cost -Products are only assigned the cost of resources they actually use
n the 19th/20th centuries, cost systems relied on allocation bases such as:
-Machine hours -Labor hours
MD&A stands for
-Management's Discussion and Analysis
Costs assigned and/or traced when computing product margins in a traditional cost system are:
-Manufacturing overhead -Direct labor -Direct materials
Which of the following items are the same under both ABC and traditional costing?
-Net operating income -Total costs -Total assets
The MOST common management reports using ABC data are:
-Product profitability -Customer profitability
Activity based management is focused on:
-Reducing defects -Eliminating waste
B's Blanket's target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. How many blankets need to be sold to achieve the target profit?
40,000
In the activity rate for the Customer Orders activity pool is $20 per order and there are 400 customer orders, the total overhead cost assigned to this cost pool is $__.
400x20=8000
Plush & Cushy sells high-end desk chairs. The variable expense per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for Plush & Cushy's chairs is _______%
45%
The formula of the income statement is (I can never ask this enough!)
-Revenues-expenses=profit
SEC stands for
-Securities and Exchange Commission
Costs that can be easily traced to individual products include:
-Shipping costs -Sales commission -Warranty repair costs
Tom Ellis recently bought a plasma tv and has since stated that he wouldn't recommend it to others. This indicates that Tom has completed which step of the decision making process?
5
Which step in the management decision making process: review the results of the decision with the goal of improving future decision making
5
An investment proposal with an initial investment of $100,000 generates annual net cash inflow of $20,000 for a period of 10 years. The project has a net present value of $10,000. What is this investment proposal's payback period?<br>
5 years
Put the steps in the decision making process in order 1. make the decision 2. review the results 3. determine the decision alternatives 4. evaluate the costs and benefits 5. identify the decision problem
5, 3, 4, 1, 2
What causes traditional and ABC systems to report different product margins
-Traditional cost systems allocate all manufacturing overhead costs to products -Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume related allocation base -The ABC system assigns nonmanufacturing overhead costs to products on a cause and effect basis as appropriate
What causes traditional and activity-based costing systems to report different product margins?
-Traditional cost systems allocate all manufacturing overhead costs to products -Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base -The ABC system assigns non manufacturing overhead costs to products on a cause-and-effect basis as appropriate.
A variable cost might vary with levels of production
-True
Companies use their own unique terminology for the titles and the line items on their financial statements
-True
Cost accounting systems track how much it costs to create, market, sell, and distribute a product or service
-True
Legal proceedings is one of many disclosures in Part I of the 10-K
-True
Part I of the 10-K is background information
-True
The SEC dictates the type of font to be used in financial filings
-True
The auditor issues an adverse opinion when the entity does not follow GAAP and it results in a material misstatement in the financial statements
-True
The frequency and accuracy of information cost time and money
-True
The indirect method has line items that disclose the increase or decrease in working capital items such as inventory, receivables, and payables
-True
In ABC, what costs are NOT assigned to products?
-Unused capacity -Organization sustaining
The cash flow statement is similar to
-a bank account statement
which of the following may be an advantage of making a part rather than buying it?
-a smoother flow of parts and materials for production -less dependence on outside suppliers
the customer orders cost pool consumes 25% of the indirect factory wages. What amount will be allocated to this cost pool in the first-stage allocation if total indirect factory wages are $500,000
500000x.25=125000
When you incur an expense but do not pay it in cash, it is recorded, under the accrual method of accounting, as
-an accounts payable
A sale that has not yet been collected in cash is
-an accounts receivable
which of the following are ways in which to calculate the benefit of selecting one alternative over another?
-an analysis that just looks a the relevant costs and benefits. -the difference between the net operating income for the two alternatives. -an analysis that looks at all costs and benefits and identifies those that are differential.
What is the price-earnings ratio for this company?
6 times.
Bark company is considering buying a machine for $180,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $12,000 each year. The cash payback period on this investment is:
6 years.
Organize the following budgets in order of preparation 1. cash budget 2. selling and administrative expense budget 3. manufacturing overhead budget 4. raw materials purchases budget 5. budgeted balance sheet 6. sales budget 7. direct labor budget 8. budgeted income statement 9. budgeted COGS 10. production budget
6, 10, 4, 7, 3, 9, 2, 8, 1, 5
What is the return on assets for this company?
6.8%
The best opinion an auditor can issue on the financial statements is
-an unqualified opinion
identify some of the characteristics of the master budget schedules:
-answers several key questions for a company -based on estimates and assumptions
joint costs:
-are irrelevant in decisions regarding what to do with a product after split-off -cannot be avoided once a process is started.
highly achievable budget targets:
-are used in most companies -may help build manager confidence -may generate greater management commitment to the budget.
if the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product would be $__.
65x120=$7800
when making a decision to either go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of the DVD would be eliminated. This is an example of which type of cost?
-avoidable cost -relevant cost
Retained earnings appear on which statement?
-balance sheet
The balance of accounts payable is reported on which statement?
-balance sheet
The balance of intellectual property is included on which statement?
-balance sheet
When an entity does not have enough resources to pay off its lenders or the bank, it is called
-bankruptcy
A company has the following: Target Profit - $204,000 Fixed Costs - $305,000 Contribution Margin - $40 What is the break-even in unit sales?
7,625
managers may choose to retain an unprofitable product line:
-because it attracts customers -because it helps sell other products
when preparing a direct materials purchase budget, which of the following is needed to calculate the raw materials to be purchased?
-beginning inventory of raw materials -raw materials required per unit.
which of the following are advantages of budgeting?
-budgets coordinate the activities of the entire organization by integrating the plans of its various parts. -the budgeting process can uncover potential bottlenecks before they occur. -budgets force managers to think about and plan for the future. -budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.
The cash flow statement only cares about what happened to
-cash
Cash used to purchase a fixed asset appears on which statement?
-cash flow statement
Cash inflows from investing activities include
-cash proceeds from the sale of equity investments in other entities
which of the following types of budgets keep managers focused on one year ahead, so they do not become too narrowly focused on short-term results?
-continuous -perpetual
the purpose of a budget should be to:
-coordinate efforts -establish goals -motivate people
which of the following might be included in a customer relations cost pool?
-cost of sales calls -customer entertainment
which reports are the most common management reports using ABC data?
-customer profitability -product profitability
which of the following are synonyms for avoidable cost?
-differential cost -incremental cost
which of the following budgets are needed to calculate unit product costs?
-direct materials budget -manufacturing overhead budget -direct labor budget
To approximate the market price of shares of stock at the fiscal year-end
-divide total market value of shares on the cover of the 10-k by total number of shares outstanding
The double-entry accounting system is thus called because
-each entry has two sides to it - a debit and a credit
What sorts of items end up on the bottom of the income statement?
-earnings from foreign currency transactions -sale of a business segment
types of costs that might be included in a cost pool based on order size include:
-equipment depreciation -factory supplies
typical capital budgeting decisions include
-equipment selection decisions -cost reduction decisions -release or buy decisions -expansion decisions
Tax considerations include
-federal -state -local -sales -property -estate -personal income tax -corporate income tax
Balance sheet components include
-fixed assets cash, and accounts payable
The two main benefits of a budget are that budgets enhance
-focus and accountability
which of the following techniques describe how a bottleneck should be managed?
-focus business process improvement efforts on the bottleneck -find wats to increase the capacity of the bottleneck ensure there is minimal lost time at the bottleneck due to breakdowns and setups.
GAAP stands for
-generally accepted accounting principles
Assets are
-happy things that you own
The cash flow statement can tell you
-how a company is generating its cash -how the organization used its cash resources -how liquid the organization is -whether the income reported on the income statement is realized as cash
the simple rate of return
-ignores the time value of money -fluctuates form yr to yr along with fluctuations in revenue and exp
which of the following statements are true?
-improper allocation of joint costs can lead to incorrect decisions -joint costs are common costs that are incurred to produce two or more products. -allocation of joint costs is needed inventory valuation.
when using net present value to compare projects the total cost approach
-includes all cash inflows and outflows under each alt -is the most flexible method available to compare projects
what would happen if a company penalized individuals for NOT meeting budgeted goals?
-individuals would become too focused on meeting goals. -individuals would add too much budgetary slack.
which of the following are ways to increase the capacity of a bottleneck?
-investing in additional machines at the bottleneck. -shifting workers from processes hat are not bottlenecks to the process that is the bottleneck
Polly's Day Planners sells its planners for $35 each. Sales this year equals $927,500. The margin of safety is $27,300. The margin of safety in units is:
780 $27,300 / $35
the internal rate of return
-is the rate of return promised by an investment over its useful life -may be used for preference or screening decisions -is an alternative to the net present value method
The balance sheet
-is the super-summary of the general ledger -is the mother of all financial statements -must balance
activity based costing only charges products for the cost of the capacity used because:
-it results in a more stable unit product cost -products are only assigned the costs of resources they actually use.
which of the following are disadvantages of NOT knowing in advance how much labor time will be needed throughout the budgeted period?
-labor shortages -erratic layoffs -low employee morale
Assets=
-liabilities plus equity
how much cost savings when moving manufacturing operations oversea?
80%
In general, accounts receivable balances should be
-low
In general, inventory balances should be
-low
in the 19th and 20th centuries, cost systems relied on allocation bases such as:
-machine hours -labor hours
which of the following departments should be included in the design of an ABC system?
-marketing -engineering -accounting
Which of the following would likely be a direct cost
-materials -manufacturing labor
Orange You Going to Smile? sells oranges for $20 per crate. If the company's margin of safety is $180,000, the margin of safety in units is ________ crates
9,000
The bottom line on the income statement is called
-net income
which of the following items are the same under both ABC and traditional costing?
-net income -total costs -total sales
Equity is a similar concept to
-net worth
The factor of the internal rate of return is 5,033 for a project lasting 7 years. The internal rate of return is ______%
9; using the present value of an annuity of $1 in arrears table, 5,033 for 7 periods = 9%
Project C is a ten-year project. The project has a total cash inflow of $300,000. The present value of such inflows is $275,000. The project requires an initial investment of $250,000 and additional working capital of $30,000.
<br>The net present value is positive, negative, or zero ? Negative.
Project B is a five-year project. The project has a total cash inflow of $350,000. The present value of such inflows is $275,000. The project requires an initial investment of $200,000 and additional working capital of $25,000.
<br>he net present value is positive, negative, or zero ? Positive
To which margin should managers be held accountable?
-operating margin
which of the following should be included in the analysis when making a decision?
-opportunity costs -differential costs -avoidable costs -relevant costs
a(n) __ budget is prepared with the full cooperation of management at all levels.
-participative -self - imposed
To get the 10-K, you can
-print it off from the company's website -print if off from the SEC Web site -call investor relations at the company and request a copy -e-mail investor relations at the company to request a copy
Project A is a six-year project. The project has a total cash inflow of $200,000. The present value of such inflows is $150,000. The project requires an initial investment of $150,000.
<br>net present value is positive, negative, or zero? Zero
Simple rate of Return Formula
= Annual incremental net operating income / Initial investment
Payback period formula
= Investment required / Annual net cash inflow
The total cost in the product design cost pool is $200K with a total activity of 1,600 designs. The total cost assigned to a customer who has 7 designs is $____
=$875 ($200K/1.6k=$125 x 7 = $875)
A zero-budget asks that you
-propose output at three levels -assume that you and all your stuff don't exist anymore
preference decisions are also called )_____________ decisions
-rationing -ranking
When we capitalize something, it means we
-record it as a fixed asset
A good example of a fixed cost is
-rent
The formula of the income statement is
-revenues-expenses=profit
which of the following budgets are directly influenced by the sales budget?
-selling and administrative expense budget -production budget
the capacity of a bottleneck can be effectively increased by:
-subcontracting some of the processing that would be done in that area. -focusing business process improvement efforts on the bottleneck
which of the following should not be included in the analysis when making a decision?
-suck costs -non-differential costs
The three key financial statements are
-summaries of the general ledger.
when trying to decide if a particular cost is avoidable, how does a manager categorize irrelevant costs?
-sunk costs -future costs that do no differ between alternatives
what causes traditional and activity-based costing systems to report different product margins?
-the ABC system assigns non manufacturing overhead costs to products on a cause-and-effect basis as apposite. -traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base. -traditional cost systems allocate all manufacturing overhead costs to products.
Aliases for the income statement include
-the P&L -the profit and loss statement -the statement of earnings
The mother of all financial statements is
-the balance sheet
The three key financial statements are
-the balance sheet, the income statement, and the cash flow statement.
When we collect on an account receivable
-the cash flow statement records an increase in cash -the income statement is not affected
what manufacturing overhead costs are not assigned to products in activity-based costing?
-the costs of organization-sustaining activities -costs of idle capacity
the net present value of a project is
-the difference between the present value of cash inflows and present value of cash outflows for a project -used in determining whether or not a project is an acceptable capital investment
The database of accounting information is called
-the general ledger.
When we make a sale on credit
-the income statement records a sale -the cash flow statement is not affected
When we make a cash sale
-the income statement records a sale -the cash flow statement records an increase in cash
The technique of distributing indirect costs to different products is often called
-the indirect cost allocation method
in ABC, the greater the number of activities:
-the more costly the system will be to design -the more accurate the costs are likely to be.
select which activities could be combined into one batch-level activity.
-the number of customer orders -the number of shipped orders
Which type of budget links the strategic plan to the budget?
-the performance-based budget
The income statement is linked to the balance sheet, its mother, through
-the retained earnings figure
Who has to approve any changes to the article of incorporation of the company?
-the shareholders
Governments call the income statement
-the statement of revenues and expenditures
One of the major criticisms aimed at financial accountants is that their information isn't
-timely
Profit and cash are different because of
-timing
which characteristics are essential for successful implementation of ABC?
-top managers must support ABC -A cross-functional team should be created. -ABC data should be linked to how people are rewarded.
which of the following costs can be easily traced to individual products?
-warranty repair costs -sales commission -shipping costs
typical capital budgeting cash outflows include
-working capital invested -initial equipment investments -installation costs
Calderon Kitchen Supplies is planning to invest $210,000 in a new product. The product is expected to generate a net present value of $56,700. The project profitability index is:
0.27
Which step in the management decision making process: identify the decision problem, or determine why a decision needs to be made in the first place
1
Present Value =
1 / (1+r)^n
place the following steps used to calc net present value in the correct order
1 determine the discount rate using the min require return 2 find the PV factors using the discount rate & timing of each cash flow 3 multiply all project cash flows by the present value factor 4 find the difference bet the PV of cash inflows and cash outflows
Typical capital budgeting decisions include:
1) Cost reduction decisions 2) Expansion Decisions 3) Equipment Selection Decisions 4) Lease or Buy Decisions 5) Equipment Replacement Decisions
(Place the following steps used to calculate net present value in the correct order)
1) Determine the discount rate using the minimum required return 2) Find the PV factors using the discount rate and timing of each cash flow 3) Multiply all project cash flows by the present value factor 4) Find the difference between the PV of cash inflows and cash outflows
Identify some of the characteristics of the master budget schedules
1. Answers several key questions for a company 2. Based on estimates and assumptions
Which of the following are advantages of budgeting?
1. Can uncover potential bottlenecks before they occur 2. Define goals and objectives that can serve as benchmarks for evaluating subsequent performance 3. Coordinate the activities of the entire organization by integrating the plans of its various parts 4. Force managers to think about and plan for the future
Which of the following types of budgets keep managers focused one year ahead, so they do not become too narrowly focused on short-term results:
1. Continuous 2. Perpetual -each one will work
Place the steps for implementing ABC in order.
1. Define activities, activity cost pools, and activity measures. 2. Assign overhead costs to activity cost pools. 3. Calculate activity rates. 4. Assign overhead costs to cost objects. 5. Prepare management reports.
The steps for implementing ABC in order:
1. Define activities, activity cost pools, and activity measures. 2. Assign overhead costs to activity cost pools. 3. Calculate activity rates. 4. Assign overhead costs to cost objects. 5. Prepare management reports.
Steps used to calculate net present value in the correct order
1. Determine the discount rate using the minimum required return<br>2. Find the PV factors using the discount rate and timing of each cash flow<br>3.Multiply all project cash flows by the present value factor.<br>4. Find the difference between the PV of cash inflows and cash outflows.
Classified as capital budgeting decisions
1. Determining which equipment to purchase among available alternatives<br>2. acquiring a new facility to increase capacity<br>3. choosign to lease or buy new equipment<br>4. deciding to replace old equipment<br>5. Purchasing new equipment to reduce cost
Which of the following budgets are directly based on information from the sales budget:
1. Production budget 2. Selling and administrative expense budget
Shortcomings of the payback period when making a capital investment decision include:
1. The payback period ignores all cash flows that occur after the payback period.<br>2. The payback period does not consider the Time Value of Money
Blowing Sand Company has just received a one time offer to purchase 10,000 units of its Gusty model for a price of $22 each. The Gusty model costs $26 to produce ($17 in variable costs and $9 of fixed overhead). Because the offer came during a slow production month, Blowing Sand has enough excess capacity to accept the order. 1. Should blowing sand accept the special order? 2. Calculate the increase or decrease in short term profit from accepting the special order
1. Yes 2. Profit will increase $50,000 (10,000 fans X $5 contribution margin)
What are the ways in which to calculate the benefit of selecting one alternative over another? (3):
1. an analysis that just looks at the relevant costs and benefits 2. the difference between the net operating income for the two alternatives 3. an analysis that looks at all costs and benefits and identifies those that are differential
Master budget schedules:
1. are based on estimates and assumptions 2. answer several key questions for a company
Managers may choose to retain an unprofitable line because it: (2)
1. attracts customers 2. it helps sell other products
what are the advantages of dropping a product line or other segment? (2):
1. avoiding more fixed costs than the company loses in contribution margin 2. an overall increase in net operating income
Which of the following is needed to calculate raw materials to be purchased on the direct materials budget:
1. beginning inventory of raw materials 2. raw materials required per unit
Place the steps for implementing ABC in order
1. define activities, activity cost pools, and activity measure 2. assign overhead costs to activity cost pools 3. calculate activity rate 4. assign overhead costs to cost objects 5. prepare management reports.
place the steps for implementing ABC in order.
1. define activities, activity cost pools, and activity measure. 2. assign overhead costs to activity cost pools. 3. calculate activity rate 4. assign overhead costs to cost objects 5. prepare management reports.
What are synonyms for avoidable cost? (2):
1. differential cost 2. incremental cost
Which of the following budgets are needed to calculate unit product costs:
1. direct labor budget 2. manufacturing overhead budget 3. direct materials budget
The purpose of a budget should be to:
1. establish goals 2. measure operating results 3. isolate areas needing attention
what techniques describe how a bottleneck should be managed? (3):
1. find ways to increase the capacity of the bottleneck 2. focus business process improvement efforts on the bottleneck 3. ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups
the capacity of a bottleneck can be effectively increased by: (2):
1. focusing business process improvement efforts on the bottleneck 2. subcontracting some of the processing that would be done in that area
What would happen if a company penalized individuals for not meeting budgeted goals:
1. individuals would become too focused on meeting goals 2. individuals would add too much budgetary slack
What are ways to increase the capacity of a bottleneck? (2):
1. investing in additional machines at the bottleneck 2. shifting workers from processes that are not bottlenecks to the process that is the bottleneck
Highly achievable budget targets:
1. may generate greater management commitment to the budget 2. are used in most companies 3. may help build manager confidence
What should NOT be included in the analysis when making a decision? (2):
1. non-differential costs 2. sunk costs
which of the following should be included in the analysis when making a decision: (4)
1. opportunity costs 2. relevant costs 3. differential costs 4. avoidable costs
when making a decision to either go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of renting the DVD would be eliminated. This is an example of a(n):
1. relevant cost 2. avoidable cost
A budget prepared with the full cooperation of management at all levels is a ____ budget:
1. self-imposed 2. participative -both work
What are ways in which to calculate the benefit of selecting one alternative over another? (3) :
1. the difference between the net operating income for the two alternatives 2. an analysis that looks at all costs and benefits and identifies those that are differential 3. an analysis that just looks at the relevant costs and benefits
Capital budgeting decisions focus on cash inflows and outflows rather than accounting income because:
1. the present value of a cash flow depends on when it occurs<br>2. accounting net income is based on accruals
Characteristics of the simple rate of return method for evaluating capital investment proposals
1. the simple rate of return fluctuates from year to year along with fluctuations in revenue and expense.<br>2. the simple rate of return ignores the time value of money.
Capital budgeting decisions place an emphasis on project cash flows because:
1. the timing of cash inflows and outflows is critical in the success and profitability of capital projects.<br>2. accounting net income ignores when cash flows occur
What is the current ratio for this company?
1.42
Present Value of an Annuity =
1/r (1- 1/(1+r)^n)
Identify which of these activities are steps in management's decision making process and place those steps in the order in which they should be executed. 1. Analyze how changes in cost structure affect CVP relationships 2. Make the decision 3. Eliminate the product line 4. Evaluate the costs and benefits of the alternatives 5. Prioritize products to maximize short term profits 6. Determine the decision alternatives 7. Process the product further 8. Review the results of the decision 9. Use cost volume profit analysis to determine sales needed to break even 10. Identify the decision problem
10, 6, 4, 2, 8
View Perfect is considering an investment in a new line of windows. The project is expected to last 10 years. If the factor of the internal rate of return is 5,889, the internal rate of return is:
11%
ABC Company expects to sell 100,000 units of its primary product in January. Expected beginning and ending finished goods inventory for January are 20,000 and 45,000 units, respectively. How many units should ABC produce?
125,000
If budgeted sales are 10,000 units, the desired ending inventory of finished goods is 5,000 units, and the beginning inventory of finished goods is 2,000 units, required production is
13,000 units (10,000 + 5,000 - 2,000)
What is the return on common stockholder's equity for the company?
13.3%
ABC Inc's expected sales for the first 6 months of the year are as follows month expected unit sales Jan. 12,000 Feb. 15,000 March 16,000 April 20,000 May 22,000 June 25,000 Management believes that an appropriate ending inventory is 25% of current period sales. Calculate the number of units to be produced in March
16,250 (march sales 16,000 + ending inventory (25% of march sales) 4,000 - beginning inventory (25% of february sales) 3,750)
ABC Inc's expected sales for the first six months of the year are as follows: January: 12,000 February: 15,000 March: 16,000 April: 20,000 May: 22,000 June: 25,000 Management believes that an appropriate ending inventory is 25% of next month's sales. Calculate the number of units to be produced in March.
17,000 March sales (16,000) + Ending inventory (.25 x (April sales) 20,000) - Beginning inventory of March sales (.25 x 16,000 = 4,000) = 17,000 units to be produced
ABC Inc.'s expected sales for the first six months of the year are: Jan- 12,000 Feb- 15,000 Mar- 16,000 Apr- 20,000 May- 22,000 Jun- 25,000 If desired ending inventory is 25% of next month's sales, the number of units produced in March is:
17,000 March sales 16,000 + Ending Inventory (25% of April Sales) 5,000 - Beginning Inventory (25% of March Sales) 4,000 = 17,000 units to be produced
ABC, Incs expected sales for the first six month of year are: January: 12,000 feb: 15,000 march: 16,000 april: 20,000 may: 22,000 june:25,000 if desired ending inventory is 25% of next month's sales, the number of units to be produced in march is:
17,000 March sales 16,000+ ending inv (25% of april sales) 5,000 - beginning inv (25% of march sales) 4,000 = 17,000 units to be produced
Which step in the management decision making process: determine the decision alternatives, or decide what the potential solutions to the problem are
2
What is the inventory turnover for this company?
2.25 times.
Sandy's Soda Co. is planning an investment in new cooling equipment that would cost $56,000. The new equipment would save on operating costs over the next 5 years as follows: $21,500 in year 1; $23,000 in year 2; $19,000 in year 4; and $15,200 in year 5. The payback period for the cooling equipment is:
2.6 years after two years $44,600 ($21,500 + $23,100) will have been paid back leaving $11,400 ($56,000 - $44,600)/ $11,400/$19,000 = .6, so the total payback period is 2.6 years
A company is considering an investment that costs $30,000 and has a 5-year life. Net operating income will be $4,000 per year, which includes an annual depreciation deduction of $6,000 per year. at the end of 5 years the scrap value will be $2,000. Calculate the payback period.
2.8 years 30,000-2,000/4,000+6,000
The total cost in the Product Design cost pool is $200,000 with a total activity of 1,600 designs in activity-based costing, the total cost assigned to a customer who had 7 designs done would be $__.
200000/1600 designs=125*7 = 875
Carter Production Inc required production for the first six month of the year is as follows Jan- 50,000 Feb- 70,000 Mar- 85,000 Apr- 105,000 May- 110,000 Jun- 120,000 Each unit requires two pounds of material. Given a desired ending inventory of 20% of the next month's production needs, the pounds of material to be purchased in April is:
212,000 pounds April production needs (105,000 x 2) 210,000 + Ending Inventory (20% of May production needs (110,000 x 2 x 20%) 44,000 - Beginning Inventory (20% of April) 42,000 = 212,000 pounds
Budgets that are most likely to motivate employees A. are tight but attainable B. contain budgetary slack C. are preparing using a top down approach D. are prepared using easy goals
A
Collections on credit sales made to customers in prior period(s) plus collections on sales made in the current budget period equal A. cash receipts B. cash payments C. merchandise purchases
A
Carter production, Inc's required production for the first 6 months of the year is as follows monthrequired production jan 50,000 feb 70,000 march 85,000 april 105,000 may 110,000 june 120,000 Each unit requires 2 pounds of material. Management believes that an appropriate ending inventory is 20% of next month's production needs. Calculate the pounds of material to be purchased in April
212,000 pounds (april production needs (105,000 X 2)210,000 + ending inventory (20% of May production needs: 110,000 X 2 X 20%)44,000 - beginning inventory (20% of April)42,000)
What is the profit margin for this company?
23.5%
An investment of $2,000 at 7% compound interest will be worth $ at the end of 3 years.
2450
Deciding what to do with a product that's ready to sell or could be enhanced is a A. sell or process further decision B. product line decision C. special order decision D. make or buy decision
A
Which step in the management decision making process: evaluate the costs and benefits of the decision alternatives that were identified in the previous step
3
The term ______ is also used when referring to an allocation base or activity measure in activity based costing
COST DRIVER
The cash excess or deficiency section:
If a cash deficiency exists during any budget period or if there is a cash excess that is less than the minimum required cash balance, the company will need to borrow money. If it is greater than the minimum required cash balance, the company can invest the excess funds or repay principal and interest to lenders.
When making a capital budgeting decision, it is most useful to calculate the payback period:
If a company is "cash poor" As part of the screening process
Select the following statements about the evaluation of capital investment projects which are correct.
If the internal rate of return is greater than the required rate of return, then the project is acceptable; If the internal rate of return is less than the rate of return, then the project should be rejected.
A manager with a current ROI of 22% has been offered a project with a positive net present value and a simple rate of return of 17%. Which of the following statements are true?
If the manager is evaluated based on ROI he will probably reject the project; The company will want the manager to accept the project
Margin, turnover
In order to fully evaluate ROI managers should compute both ______ and ______
differential (avoidable)
In step two of decision making, the costs that remain are the ___ costs.
When using net present value to compare projects, the total cost approach:
Includes all cash inflows and outflows under each alternative; Is the most flexible method available to compare projects
A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budget:
Income Statement
Which of the following is the best way to make use of a constrained resource
Increase the capacity of the bottleneck
Unfavorable activity variances may not indicate bad performance because:
Increased activity should result in higher variable costs
Format for a Special Order
Incremental Revenue Less Incremental Costs Direct Materials Direct Labor Variable MOH Special Modifications Special Fixed Costs Total Incremental Costs Incremental Net Operating Income
A joint product should be processed after split off if the:
Incremental Revenue after split off exceeds the incremental processing costs after split off
Only those cash flows that differ between the two alternatives are included in the analysis.
Incremental-cost approach
The ________ lists only those costs and revenues that differ between the two alternatives being compared.
Incremental-cost approach
Match the following approaches used to compare competing investment projects with the appropriate explanation of the approach.
Incremental-cost approach-all cash flows that are included in calculating the net present value for each alternative. Incremental-cost approach-only those cash flows that differ between the two alternatives are included in the analysis.
Place the following steps for finding the internal rate of return (IRR) in the correct order
Calculate the factor needed to determine the internal rate of return; find the line in the PV of an annuity table of the project years; Trace the line across the table until the factor appear; trace up the column containing the factor to find the IRR
Another term for the minimum required rate of return is the cost of .
Capital
The term is used to describe how managers plan significant investments in projects that have long term implications
Capital Budgeting
Simple rate of return
Capital budgeting technique that does not involve discounting cash flows
Collections of credit sales made to customers in prior periods plus collections on sales made in the current budget period equals expected ___ collections
Cash
Acid-Test (Quick) Ratio =
Cash + Marketable Securities + AR + Short Term notes receivable / Current Liabilities (the liquid assets)
The payback period is the length of time that it takes for a project to recover its costs from the net cash inflows that it generates.
Initial
Format for Net Present Value Analysis Using Discount Factors
Initial Investment Annual Cost Savings Salvage Value of the new machine Total cash flows (a) Discount Factor (b) Present Value of the Cash Flows (a x b) Net Present Value
When a product is past the split off point, but is not yet a finished product it is called a(n) _____________ product
Intermediate
Select the two capital budgeting approaches that use discounted cash flows.
Internal rate of return method; net present value method
The ___ rate of return focuses on cash flows, while the ___ rate of return focuses on revenue and expense.
Internal; Simple
The ____ rate of return focuses on cash flows, while the ____ rate of return focuses on revenue and expense.
Internal<br>Simple
Identify each working capital situation with the appropriate treatment.
Cash Inflow-Working capital is released for use elsewhere within the company Cash outflow-Working capital is tied up for project needs.
A detailed plan showing how cash resources will be acquired and used is shown on the:
Cash budget
What consists of collections on credit sales made to customers in prior periods plus collections on sales made in the current budget period:
Cash collections
The payback method, net present value, and internal rate of return method all focuses on analyzing the ____ associated with capital investment projects
Cash flows
A new project requires an investment of $500,000 and an increase in working capital of $130,000. The project will generate $100,000 in cash inflows fo 7 years, at which point the working capital will be released. Using a discount rate of 10%, the net present value of the project is _____
Cash inflows of $486,800 [$100,000 x 0.868 (PV of an annuity for 7 periods @ 10%)] + $66,690 [$130,000 x 0.513 (PV of $1 in 7 periods @ 10%)] - Cash outflows of $630,000 (cost + working capital = (76,510) NPV
When discussing capital investments, the term out-of-pocket costs refer to:
Cash outlays for salaries, advertising, and other operating expenses
A postaudit involves:
Checking whether expected results are actually realized
economies of scale
Companies may fail to take advantage of suppliers who can create an __ __ __ advantage by pooling demand from numerous companies.
variance analysis
Companies use the ______ ______ cycle to evaluate and improve performance
fixed
Comparing actual costs to static planning budget cost only makes sense if the cost are
The phenomenon of earning interest on both the interest and the amount invested is known as ________<br>
Compound interest
Which of the following is not a management function?
Constraining
When a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n)
Constraint
Stephens Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Stephens' per unit manufacturing costs for 20,000 units is: Variable Manufacturing Cost - $12 per unit, total $240,000. Supervisory Salary - $3 per unit, total $60,000 Depreciation - $1 per unit, total $20,000 Allocated fixed overhead - $7 per unit, total $140,000 If the part is purchased, the supervisory position would be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. Should the company buy the part or continue to make it?
Continue to make - $60,000 advantage. The avoidable costs of making the product are the variable costs plus the supervisor salary or $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make x 20,000 units).
When making a decision, a company may focus on lost ______ ______ and avoidable fixed costs or prepare comparative income statements.
Contribution Margin
When making a product line decision a company may focus on lost ____________ _____________ and avoidable fixed costs or prepare comparative income statemetns
Contribution Margin
I some products must be cut back because of a constraint, produce the product with the highest
Contribution Margin Per Unit of Constrained Resource
When a constraint exists companies should focus on maximizing
Contribution Margin Per Unit of Constraint
CVP
Cost Volume Profit
Relevant Cost
Cost and benefits that differ in total between two alternatives
In activity based costing another term for activity measure is:
Cost driver
match each capital investment with its meaning
Cost of capital - average rate of return that must be paid to long-term creditors and shareholders for use of their funds Working capital - Current assets minus current liabilities Initial investment - Funds needed to purchase a capital asset or begin a capital investment project Salvage value - Funds gained from the sale of a capital asset
Which of the following might be included in a customer relations cost pool?
Cost of sales calls and customer entertainment.
Which of the following fall under the category of typical capital budgeting decisions?
Cost reduction decisions; lease or buy decisions; equipment and selection decisions
Working capital
Current assets - current liabilities
Working Capital:
Current assets minus current liabilities
Committing funds today with the exception of earning a return on those funds in the future in the form of additional cash flows are required when a company makes a:
Investment
Budgeted cost of goods sold is based on A. expected production B. actual sales C. actual production D. expected sales
D
Budgeted expenses for costs related to selling the product and managing the business are shown on the _____ budget A. manufacturing overhead B. cash C. ending finished goods inventory D. selling and administrative
D
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are _____ costs A. avoidable B. relevant C. irrelevant D. sunk
D
Raya Company is calculating its expected cash receipts for the month of June. This should NOT include A. cash sales made during June B. credit sales made during May C. credit sales made during June D. credit sales made during July
D
Sunk costs are always A. opportunity costs B. avoidable C. relevant D. irrelevant
D
The decision making approach in which a manager considers only costs and benefits that differ for alternatives is called A. incremental analysis B. outsourcing C. differential analysis D. either A or C
D
The entire budget must be created from scratch every period when using A. participative budgeting B. top down budgeting C. continuous budgeting D. zero based budgeting
D
The process of making a decision A. should consider both relevant and irrelevant costs B. starts with a determination of the decision alternatives C. varies depending upon the decision at hand D. is basically the same for all decisions
D
To calculate the direct labor requirement for each quarter A. multiply the number of direct labor hours required per unit times the number of units to be sold B. add the number of direct labor hours required per unit to the number of units to be produced C. add the number of direct labor hours required per unit to the number of units to be sold D. multiply the number of direct labor hours required per unit times the number of units to be produced
D
To maximize total contribution margin when a constrained resources exists A. produce the products with the lowest unit contribution margin B. produce the products with the highest unit contribution margin C. produce the products with the lowest contribution margin per unit of the constrained resource D. produce the products with the highest contribution margin per unit of the constrained resource
D
What's multiplied by the budgeted unit sales to obtain total sales on the sales budget? A. budgeted units to be produced B. number of units budgeted to be sold C. budgeted gross margin % D. budgeted sales price per unit
D
When making make or buy decisions, managers should consider A. alternate uses for any facility currently being used to make the item B. the costs of direct materials included in making the item C. qualitative factors such as whether the supplier can deliver the item on time and to the company's quality standards D. all of the above
D
Which of the following budgets is affected by the sales budget? A. direct labor budget B. cash receipts and payments budget C. selling and administrative budget D. all of the above
D
Which of the following budgets would be prepared earliest in a company's budgeting process? A. budgeted income statement B. budgeted balance sheet C. raw materials purchases budget D. production budget
D
Which of the following could be a constrained resource? A. machine hours B. direct materials C. factory space D. all of the above
D
Which of the following refers to the costs that ALWAYS differ between alternatives? A. irrelevant costs B. variable costs C. sunk costs D. relevant costs
D
Which of the following statements is TRUE? A. the first step in preparing the master budget is a budgeted balance sheet B. the master budget may be prepared in any order C. cooperation from management is not a required part of the budgeting process D. materials and labor budgets are based on the production budget
D
Which of the following statements is true? A. GAAP requires all companies to prepare budgets B. only newly formed companies need budgets C. most service firms prepare production budgets D. most companies would benefit from budgeting
D
Which phases of the management process are impacted by budgeting? A. planning B. directing/leading C. controlling D. all of the above
D
_____ happens when a manger creates a budget that understates expected revenues or overstates expected expenses A. zero based budgeting B. participative budgeting C. top down budgeting D. budgetary slack
D
Committing funds today with the expectation of earning a return on those funds in the future in the form of additional cash flows is required when a company makes a(n) ___.
Investment
(Use the following items to create the equation used to calculate the payback period when annual net cash inflow is the SAME EVERY YEAR)
Investment Required/(divided by) Annual Net Cash Inflow
Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that: A) variable costing treats only direct materials and direct labor as product cost while absorption costing treats direct materials, direct labor, and the variable portion of manufacturing overhead as product costs. B) variable costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs while absorption costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs. C) variable costing treats only direct materials, direct labor, the variable portion of manufacturing overhead, and the variable portion of selling and administrative expenses as product cost while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs. D) variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.
D) variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.
An increase in the level of activity will have the following effects on unit costs for variable and fixed costs:
D, Remains constant & Decreases.
profit
DECISION RULE: only drop a segment if the company's total __ would increase.
Unit Production Cost under Absorption Costing=
DM per unit + DL per unit + VMO per unit + FMO per unit
Which of the following are appropriately classified as capital budgeting decisions?
Deciding to replace old equipment. Acquiring a new facility to increase capacity. choosing to lease or buy new equipment. Determining which equipment to purchase among available alternatives. Purchasing new equipment to reduce cost.
% change in net operating income=
Degree of operating leverage X % change in sales
To obtain the total number of units to be produced add ______ to budgeted sales unit
Desired Ending Inventory
The finance section:
Details the borrowings and principals and interest repayments projected to take place during the budgeted period
Direct Materials Budget
Details the raw materials that must be purchaed to fulfill the production budget and to provide for adequate inventories
Place the following steps used to calculate net present value in the correct order.
Determine the discount rate using the minimum required return; find the PV factors using the discount rate & timing of each cash flow; multiply all project cash flows b the present value factor; find the difference between the PV of cash inflows and cash outflows
Net Present Value (NPV)
Difference between an investment's market value and its cost
What costs make up the manufacturing cost per unit under variable costing?
Direct Labor Variable Manufacturing Overhead Direct Materials
Total cost of a job =
Direct Material + Direct Labor + Applied MOH
Payments for DM, DL, and MOH costs are all listed in the _____ section of the cash budget
Disbursements
The present value of an amount to be received in the future is also known as _____ of the future cash receipt
Discounted value
Calculating the present value of money is referred to as _____ cash flows
Discounting
Finding the present value of a future cash flow is called .
Discounting
Finding the present value of a future cash flow is called __
Discounting
Finding the present value of a future cash flow is called ___.
Discounting
The amount of time required to perform an activity is measured by a ______ driver
Duration
Example of a Irrelevant Cost
EX. You're deciding whether to go to a movie or rent a DVD. The rent on your apartment is irrelevant.
Individual product costs calculated using ABC are not listed on ______ reports
EXTERNAL
Discounted payback is the time it takes to break even in a ...... sense.
Economic or financial
The cost of unsold units is computed on the:
Ending finished goods inventory
When making a preference decision, the net present value of one project cannot be directly compared to the net present value of another project unless the initial investments are ___.
Equal
When making a preference decisions, the net present value of one project cannot be directly compared to the net present value of another project unless the initial investment is are:
Equal
Predetermined Overhead Rate =
Estimated total Manufacturing Overhead Cost / Estimated total amount of the allocation base
inefficient operations, high defect rates, obsolete goods
Excessive inventory on hand, especially in the work in process inventory account, may lead to:
What is the formula for finding the balance at the end of a period?
F=P(1+r)
A duration driver provides a simple count of the number of times that an activity occurs.
False
Absorption costing treats all fixed costs as product costs.
False
Activity-based costing is best proposed, designed and implemented by the accounting department without requiring the time of busy managers.
False
All other things the same, if a divisions traceable fixed expenses decrease then the divisions segment margin will decrease.
False
Batch-level activities are performed each time a unit is produced.
False
Departmental overhead rates will correctly assign overhead costs in situations where a company has a range of products that differ in volume, lot size, or complexity of production.
False
First-stage allocations in an ABC system should not be based on the opinions of employees about how costs should be distributed among activity cost pools.
False
In activity-based costing, all manufacturing costs must be included in product costs.
False
In activity-based costing, as in traditional costing systems, manufacturing costs are not assigned to products.
False
In the second-stage allocation in activity-based costing, costs that were not allocated in the first stage are assigned to the company's most profitable products.
False
Indirect materials can be easily and inexpensively traced to a specific product.
False
Net operating income computed using absorption costing will always be less than net operating income computed using variable costing.
False
Organization-sustaining activities relate to specific customers and are not tied to any specific products.
False
Segmented statements for internal use should not be prepared using the contribution format.
False
The salary paid to a store manager is not a traceable fixed expense of the store.
False
Traditional cost systems tend to overcost standard products and overcost specialty products.
False
True or False: Opportunity costs are not found in accounting records because they are not relevant decisions
False
True or False: When a company sells multiple products, an increase in total sales always results in an increase in total profits
False
True or false: CVP analysis investigates company personnel polices, business values, and performance measures for a specific company.
False
Under absorption costing, a portion of fixed manufacturing overhead cost is released from inventory when production volume exceeds sales volume.
False
Under variable costing, fixed manufacturing overhead is treated as a product cost.
False
Unit-level activities are performed each time a batch is handled or processed.
False
When a company implements activity-based costing, manufacturing overhead cost is often shifted from low volume products to high volume products, with a higher unit cost resulting for the high volume products.
False
When activity-based costing is used for internal decision-making, the costs of idle capacity should be assigned to products.
False
When combining activities in an activity-based costing system, batch-level activities should be combined with unit-level activities whenever possible.
False
When the cash flows associated with an investment project change from year to year, the payback period is determined by dividing the total investment required by the annual net cash inflow.<br>
False
True or false: One difference between ABC and traditional product costing is that when using activity-based costing, organization-sustaining costs are assigned to products. Under traditional costing, they are not.
False Organization-sustaining costs are assigned to products when using traditional costing.
True or False: Simple CVP analysis can be relied on for changes in volume outside the relevant range
False The CVP model must be adjusted for activity levels outside the relevant range
True or false: The benefits of increased accuracy from ABC always outweighs the costs
False, very costly.
True or False: When capital investment decision is being made between two or more alternatives, the project with the shortest payback period is always the most desirable investment.
False: The project with the shortest payback period will earn its investment back more quickly, but not necessarily the most desirable project between the alternatives.
Revenue: Actual Rev. > Budgeted Rev. =
Favorable
The beginning raw materials inventory for the year is the same as the beginning raw materials for which quarter:
First
One of the great dangers of allocating common __________ costs is that such allocations can make a product look less profitable than it really is
Fixed
The percent change in net income in flexible budget is greater than the percent change in activity due to ___ costs
Fixed
______ expenses are deducted from the segment CM to compute the divisional segment margin
Fixed
A Business segment should only be dropped if a company can save more in _blank_ costs than it loses in contribution margin.
Fixed Costs
Unit Sales to Breakeven =
Fixed Expenses / Unit CM
How do fixed costs change in total and per unit as activity changes?
Fixed cost per unit decreases as the activity level rises, and increases as the activity level falls
Fixed costs and sunk costs ARE NOT the same thing
Fixed costs and sunk costs ARE NOT the same thing
Which of the following statements is true?
Fixed costs are often more controllable than variable costs
Dollar Sales to Break even =
Fixed expenses / CM Ratio
Dollar Sales to Break even=
Fixed expenses / CM Ratio
Unit Sales to break even=
Fixed expenses / Unit CM
Estimates of what revenues and costs should have been based on the actual level of activity are shown on the ___ budget
Flexible
Revenue and costs are adjusted as the level of activity changes on a ____ budget
Flexible
Why do we need flexible budgets?
Flexible budgets take into account how changes in activity affect costs.
What is the formula for finding the balance in an account after periods of compounding?
Fn=P(1+r)^n
Which of the following techniques describe how a bottleneck should be managed?
Focus business process improvement efforts on the bottleneck. Find ways to increase the capacity of the bottleneck. Ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups.
COMMON Fixed Costs
For good of the whole organization
The desired ending raw materials for the year is the same as the desired ending inventory for the ____ quarter
Fourth
Salvage Value
Funds GAINED from the sale of a capital asset.
Salvage Value:
Funds gained from the sale of a capital asset
Initial Investment:
Funds needed to purchase a capital asset or begin a capital investment project
Initial investment
Funds needed to purchase a capital asset or begin a capital investment project.
What is the equation used to calculate the payback period when annual net cash inflows are the same every year
Investment required/ Annual net cash inflow
Spending money on opening a new location, purchasing new equipment, implementing new programs, expanding to new product lines, and conducting research are all examples of:
Investments
Capital budgeting decisions:
Involve an immediate cash outlay in order to obtain a future return; Require a great deal of analysis prior to acceptance
Planning
Involves developing goals and preparing various budgets to achieve those goals
Controlling
Involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances changes
Managers may choose to retain an unprofitable product line because it
Helps sell other products Attracts customers
A budget that may be challenging but still able to be met by competent management exerting reasonable effort is a:
High achievable budget
When using the project profitability index to rank competing investments, the ___ the project profitability index, the more desirable the project.
Higher
Bad decisions can only result from erroneously including __________ costs and benefits when analyzing alternatives
Irrelevant
The internal rate of return:
Is an alternative to the net present value method; Is the rate of return promised by an investment over its useful life; May be used for preference or screening decisions
The incremental-cost approach:
Is preferable to the total-cost approach when only two alternatives are being considered. Only includes costs and revenues that differ between the alternatives being considered.
The internal rate of return:
Is the discount rate that makes NPV equal zero for a project
When using net present value to compare projects, the total cost approach:
Is the most flexible method available to compare projects. Includes all cash inflows and outflows under each alternative.
The discount rate:
Is the rate used to find the present value of future cash flows
revenue, and net operating income
A cost center's performance report does not include
sell or process further decision
A decision as to whether a joint product should be sold at the split-off point or sold after further processing.
Sales budget
A detailed schedule showing the expected sales for the budget period
(Select all correct statements regarding net present value)
A project with a positive NPV will recover the original cost of the investment plus sufficient cash inflows to compensate for tying up funds; The net present value method automatically provides for return of the original investment
Annuity
A series of identical cash flows
Which of the following may be an advantage of making a part rather than buying it?
A smoother flow of parts and material for production Less dependence on outside suppliers
What is annuity?
A stream of equal payments
sales value
A typical approach is to allocate joint costs according to the relative __ __ of the end products.
Machining a part for a product is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Organization-sustaining activity.
A) Unit-level activity.
ABC Lumber spent $1,000 cutting down a tree. The result was 40 unfinished logs that sell for $20 each and 100 bags of sawdust that sell for $1 each. If the unfinished logs are processed into finished lumber at a cost of $8 each, they will sell for $35. A bag of sawdust can be processed into Presto Logs that sell for $1.25 at a cost of $0.75 per bag. Which of the following statements are TRUE concerning whether the logs should be processed into finished lumber and whether the sawdust should be processed into Presto Logs? (check all that apply) A. the logs should be processed B. the sawdust should be sold as is without being processed into Presto Logs C. both the logs and the sawdust should be processed D. the $1,000 cost for cutting down the tree is relevant to the decision
A, B
Which of the following would be an advantage of dropping a division or other segment? (Check all that apply) A. an overall increase in net operating income B. avoiding more direct fixed costs than the company loses in contribution margin C. an overall decrease in other product line sales D. increasing relevant costs that the company incurs
A, B
A continuous or rolling budget (check all that apply) A. keeps managers in continuous planning mode B. adds one period to the end of the budget as each period comes to a close C. helps avoid games at the end of a budget period D. is also known as a zero based budget
A, B, C
When considering a make or buy decision managers should consider (check all that apply) A. qualitative factors B. opportunity costs C. all variable production costs D. all fixed production costs
A, B, C
Relevant costs (check all that apply) A. differ between alternatives B. are also called sunk costs C. occur in the future D. include all costs involved in a decision
A, C
When making a decision either to go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of the DVD would be eliminated. This is an example of which type of cost? (check all that apply) A. avoidable cost B. sunk cost C. relevant cost D. future cost
A, C
Which of the following budgets are NOT needed in service firms (check all that apply) A. production B. selling and administrative C. manufacturing overhead D. cash
A, C
Which of the following statements are true? (check all that apply) A. advertising for a specific product line is a direct fixed cost B. the general manager of a factory that has 3 separate product lines is a direct fixed cost C. direct fixed costs are avoidable if a segment is eliminated D. direct fixed costs will still be incurred if a segment is eliminated
A, C
Financial budgets (check all that apply) A. include the cash budget B. impact the budgeted income statement C. include the capital expenditures budget D. impact the budgeted balance sheet
A, C, D
Which of the following are advantages of budgeting? (check all that apply) A. budgets force managers to think about and plan for the future B. budgeting provides each department with the same amount of money to spend, so that all departments are treated fairly C. budgets provide benchmarks for evaluating performance D. the budgeting process provides lead time to solve potential problems E. budgets promote cooperation and coordination between different areas within an organization
A, C, D, E
When an organization uses a top down approach to budgeting (check all that apply) A. top management sets the budget B. budgetary slack is often a problem C. employees are highly motivated to meet goals D. the budget is imposed on lower levels of the organization
A, D
When preparing a raw materials purchases budget, which of the following is needed to calculate the raw materials to be purchases (Check all that apply) A. raw materials per unit B. budgeted unit sales C. ending finished goods inventory D. beginning inventory of raw materials
A, D
When trying to decide if a particular cost is avoidable, how does a manager categorize irrelevant costs? (check all that apply) A. sunk costs B. future costs that differ between alternatives C. fixed costs D. future costs that do not differ between alternatives
A, D
Which of the following budgets are needed to calculate unit product costs (check all that apply) A. direct materials budget B. cash budget C. selling and administrative budget D. direct labor budget E. manufacturing overhead budget
A, D, E
the first major step in implementing ABC is to identify the ________ that will form the foundation for the system.
ACTIVITIES
A(n) __ is any event that causes consumption of overhead resources
ACTIVITY
Labor Rate Variance =
AH x AR-SR
Variable Overhead Variance =
AH x AR-SR
Materials Price Variance =
AQ x AP-SP
A cost that can be eliminated in whole or in part by choosing one alternative over another is an
AVOIDABLE cost.
Dropping a product line enables a company to drop the products...
AVOIDABLE fixed costs.
Is Absorption or Variable Costing required in financial accounting?
Absorption
What activities and responsibilities are not associated with management's functions?
Accountability
Capital budgeting decisions place an emphasis on project cash flows because:
Accounting net income ignores when cash flows occur. The timing of cash inflows and outflows is critical in the success and profitability of capital projects.
Synonyms for the simple rate of return are the rate of return and the rate of return
Accounting; uadjusted
Which of he following are appropriately classified as capital budgeting decisions?
Acquiring a new facility to increase capacity; choosing to lease or buy new equipment; deciding to replace old equipment; purchasing new equipment to reduce cost; determining which equipment to purchase among available alternatives
Organization sustaining
Activities occur regardless of which customers are served, which products are produced or how many batches are run or units made.
A company's net operating income activity variance is favorable while the revenue and spending variances for NOI is unfavorable. Which of the following statements is true?
Activity was greater than expected but the profit was not as large as it should have been for the actual level of activity
Calculate under(over) applied MOH
Actual Applied Manufacturing Overhead -Predetermined Overhead Rate x actual allocation base
Out-of-Costs
Actual cash outlays for salaries, advertising, repairs, and similar costs
A postaudit is a valuable process because:
Actual values can be used to determine if the project is performing as expected
What assumption underlies net present value analysis?
All cash flows generate by an investment project are immediately reinvested at a rate of return equal to the discount rate.
What assumption underlies net present value analysis?
All cash flows generated by an investment project are immediately reinvested at a rate of return equal to the discount rate
What assumption underlies net present value analysis?
All cash flows generated by an investment project are immediately reinvested at a rate of return equal to the discount rate.
Net present vaue analysis
All cash flows other than the initial investment occur at the end of periods.<br>All cash flows generated by the investment project are immediately reinvested at a rate of return EQUAL to the discount rate.
Which statement is true about relevant costs in incremental analysis?
All costs are relevant if they change between alternatives.
Under activity based costing, overhead includes:
All indirect costs
Which of the following manufacturing cost elements occurs in a process cost system?
All of these.
What can make a product line look less profitable then it really is
Allocated Common Fixed Costs
An activity measure is a(n) _______ base in an activity based costing system
Allocation
A measure such as direct labor-hours or machine hours used to assign overhead costs to products and services is called a cost driver or a(n) ________.
Allocation base.
Which of the following statements are true?
Allocation of joint costs is needed for inventory valuation. Joint costs are common costs that are incurred to produce two or more products. Improper allocation of joint costs can lead to incorrect decisions.
In activity based costing, the consumption of overhead resources is caused by:
An activity
Which of the following are ways in which to calculate the benefit of selecting one alternative over another?
An analysis that just looks at the relevant costs and benefits The difference between the net operating income for the two alternatives An analysis that looks at all costs and benefits and identifies those that are differential
Ways to calculate the benefit of selecting one alternative over the other
An analysis that just looks at the relevant costs and benefits An analysis that looks at all costs and benefits and identifies those that are differential The difference between the net operating income for the two alternatives
which of the following are ways in which to calculate the benefit of selecting one alternative over another?
An analysis that looks at all costs and benefits and identifies those that are differential **An analysis that just looks at the relevant costs and benefits The difference between the net operating income for the two alternatives
Net Present Value Rule
An investment should be accepted if the net present value is positive and rejected if it is negative
Place the following items in the appropriate order to create the equation used to calculate the simple rate of return.
Annual Incremental Net Operating Income/ Initial Investment
(Place the following items in the appropriate order to create the equation used to calculate the SIMPLE RATE OF RETURN)
Annual Incremental Net Operating Income/(divided by) Initial Investment
A series of equal cash flows is a(n) ___.
Annuity
A(n) ____ is a series of equal cash flows.
Annuity
Joint Costs:
Are irrelevant in decisions regarding what to do with a product after split off Cannot be avoided once a process is started
When making a capital budgeting decision, it is most useful to calculate the payback period:
As part of the screening process; If a company is "cash poor"
The purpose of a budget:
Is to assist in establishing goals, measure operating results and isolate areas that need information
It is important to know the present value of an investment because a dollar:
Is worth more today than it will be worth a year from today
DIRECT Fixed Costs:
Associated with a particular product.
Which group is likely to be uncomfortable using ABC allocations that are based on personal interviews?
Auditors
the cost of capital is:
Average rate of return a company must pay its long-term creditors and shareholders for the use of their funds
Cost of Capital:
Average rate of return that must be paid to long-term creditors and shareholders for use of their funds
A cost that can be eliminated by choosing one alternative over another is a(n)
Avoidable
What should be included in the analysis when decision making
Avoidable Costs Differential Costs Opportunity Costs Differential Costs
Advantages of dropping a product line or other segment include:
Avoiding more fixed costs than the company losses in contribution margin An overall increase in Net Operating Income
Budgetary slack occurs when a manager submits a budget that's A. very vague B. too easy to attain C. much like budgets submitted over the previous few years D. too difficult to attain
B
Budgets are used for 2 distinct purposes: _____ and _____. The first of these purposes relates to developing goals and preparing various budgets, while the second involves comparing actual results to the budget A. directing; planning B. planning; controlling C. leading; controlling D. directing; leading
B
Common fixed costs A. are included in the calculation of segment margin B. will be incurred even if a segment is eliminated C. should be included in a keep or drop analysis D. can be assigned to specific company segments
B
Segment margin A. is calculated as part of a special order decision B. includes both variable and direct fixed costs C. includes both direct and common fixed costs D. is the same thing as contribution margin
B
Tactics are A. specific goals managers need to achieve B. specific actions or mechanisms C. used to develop the strategic plan D. detailed plans stated in financial terms
B
When determining which product or service makes the best use of constrained resource, a company has to determine which course of action will maximize the company's total A. fixed costs B. contribution margin C. net income from sales D. net sales
B
When is it profitable to continue processing a product instead of selling it as is? A. it's never profitable B. it's profitable when the incremental revenue exceeds the incremental manufacturing cost C. it's profitable when the incremental processing cost exceeds the incremental revenue D. it's always profitable
B
Which budget shows the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory? A. cash budget B. production budget C. direct materials budget D. sales budget
B
Which of the following causes opportunity costs to become relevant to management decisions? A. sunk cost B. operating at full capacity C. operating with idle or excess capacity D. avoidable costs
B
Which of the following is NOT a step of the management decision making process? A. review results of the decision B. contact competitors who have made similar decisions C. evaluate the costs and benefits of the alternatives D. determine the decision alternatives
B
Which of the following is NOT another term for relevant costs? A. avoidable costs B. sunk costs C. differential costs D. incremental costs
B
Which of the following is considered irrelevant when planning a trip? A. the cost of gasoline for the car B. the original cost of the car C. the tolls that will be paid during the drive to the destination
B
Which of the following should a company consider when making a decision? A. relevant and irrelevant costs and benefits B. relevant costs and benefits C. neither relevant nor irrelevant costs and benefits D. irrelevant costs and benefits
B
Which one of the following budgets should be prepared first? A. production budget B. sales budget C. direct materials budget D. cash budget
B
Stephens Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Stephens' per unit manufacturing costs for 20,000 units is cost per unit total VMC $12 $240,000 SS $3 $60,000 D $1 $20,000 AFO $7 $140,000 If the part is purchased, the supervisor position would be eliminated. The special equipment used to manufacture part XYZ has no other used and no salvage value. Total allocated fixed overhead would be unaffected by the decision. Should the company buy the part or continue to make it? A. buy- $100,000 advantage B. continue to make- $60,000 advantage C. buy- $80,000 advantage D. continue to make- $40,000 advantage
B (depreciation isn't a relevant cost. the avoidable costs of making the product are the variable costs plus the supervisor salary of $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make X 20,000 units))
Goodstone Tire Corp. sells tires for $90 each. Per unit costs associated with producing and selling the tires are direct materials $35 direct labor $10 factory overhead $20 The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has no excess capacity A. there will be no incremental profit or loss from the special order B. the incremental loss from the special order will be $25,000 C. the incremental profit from the special order will be $12,000
B (the total revenue of the special order is $65,000 and the cost is $53,000 (DM, DL, VO). The opportunity cost of lost sales is $37,000 (($90 regular cost-$53 of variable cost)X 1,000) for an overall loss of $25,000)
Production order processing is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Organization-sustaining activity.
B) Batch-level activity.
When unit sales are constant, but the number of units produced fluctuates and everything else remains the same, net operating income under variable costing will: A) fluctuate in direct proportion to changes in production. B) remain constant. C) fluctuate inversely with changes in production. D) be greater than net operating income under absorption costing.
B) remain constant.
An analysis of a special order (check all that apply) A. uses the same decision making process as long term pricing decisions B. is different if a company has excess capacity that if it's at full capacity C. should consider the impact on regular customers
B, C
In the long term, companies can manage constraints by (check all that apply) A. prioritize products based on contribution margin B. increasing capacity C. hiring more workers D. eliminating value added activities
B, C
Short term objectives (check all that apply) A. are the starting point of strategic planning B. are an important component of long term objectives C. need to be achieved in one year or less D. are developed after the budget process
B, C
It's important to review the results of decisions because (check all that apply) A. it's important to make sure that all expected costs occurred B. feedback is an important component of managerial accounting C. they're likely to be unexpected costs and benefits D. corrective action may be needed
B, C, D
Incremental analysis (check all that apply) A. is an important component of identifying decision problems B. is also called differential analysis C. considers all costs and benefits of a decision D. may be referred to as relevant costing
B, D
Which of the following statements is true? (check all that apply) A. the general manager of a factory that has 3 separate product lines is a direct fixed cost B. direct fixed costs are avoidable if a segment is eliminated C. direct fixed costs will still be incurred if a segment is eliminated D. advertising for a specific product line is a direct fixed cost
B, D
Which of the following budgets are needed to calculate unit product costs? (check all that apply) A. selling and administrative budget B. manufacturing overhead budget C. cash budget D. direct labor budget E. direct materials budget
B, D, E
Which one of the following best describes a job cost sheet?
It is a form used to record the costs chargeable to a specific job and to determine the total and unit costs of the completed job.
CM at break even point=
BE Point in dollars - (BE unit sales X Variable expenses per unit)
To prepare a budgeted balance sheet as of Dec. 31, 2012, data is needed from the:
Balance sheet as of Dec. 31, 2011
Setting up equipment, placing purchase orders, arranging shipments to customers are all examples of:
Batch level activities
A systematic approach that can identify improvement opportunities is:
Benchmarking
A systematic approach to identify the activities that need the most improvement is called ________
Benchmarking
The machine or process that is limiting overall outputs is called a(n)
Bottleneck
A quantitative plan for acquiring and using resources over a specified time period is a(n) ______
Budget
A quantitative plan for acquiring and using resources over over specified time period is a:
Budget
The purpose of a(n)___ is to assist in establishing goals and measuring operating results
Budget
Actual Fixed Overhead - Budgeted Fixed Overhead
Budgeted Variance Formula
Format for a Production Budget
Budgeted unit sales Add desired units of ending finished goods inventory Total needs Less units of beginning finished goods inventory Required production in units
Format for a Sales budget
Budgeted unit sales Selling Price per unit Total Sales
Which of the following is an advantage of budgeting?
Budgets communicate management's plan throughout the organization.
Which of the following statements about budget acceptance in an organization is true?
Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process.
Which of the following are true regarding the time value of money?
By collecting a project's return quickly, the investor has the opportunity to re-invest that money to earn even more; Projects that provide earlier returns are preferable to those that promise later returns
When the cash flows associated with an investment project change from year to year, the payback period must be calculated:
By tracking the unrecovered investment year by year
A _____ decision is a decision to carry out an activity internally or buy externally from a supplier A. product line B. sell or process C. make or buy D. special order
C
A business segment should only be dropped if a company can save more in fixed costs than it gives up in A. variable costs B. net income C. contribution margin D. segment sales
C
A(n) _____ order is a one time order that is NOT considered part of the company's normal ongoing business A. relevant B. supplier C. special D. standard
C
revenue
It is profitable to continue processing a joint product after the split-off point so long as the incremental ___ from such processing exceeds the incremental processing cost incurred after the split-off point.
Which of the following are benefits of conducting a postaudit?
It provides an opportunity to cut losses on floundering projects; It provides an opportunity to reinforce and possibly expand successful projects; It will flag any manager's attempts to inflate benefits or downplay costs in a project proposal
Budgets help companies A. meet short term objectives B. meet long term objectives C. both A and B D. none of the above
C
Determining decision alternatives A. is an important part of the feedback portion of decision making B. is done using incremental analysis C. is a critical step in the decision making process D. happens throughout the decision making process
C
In deciding whether to sell a product or continue to process it, costs incurred to get to product into its current condition _____ relevant in the decision A. are B. may be C. are not
C
Long term objectives are goals A. managers hope to achieve in 6-12 months B. that are used to develop a strategic plan C. managers hope to achieve in 5-10 years D. that are an integral part of the operating budget
C
Products that can be used in place of one another are called A. segment products B. common products C. substitute products D. complementary products
C
Sales revenue minus all costs (fixed or variable) of a particular division is known as A. gross margin B. contribution magin C. segment margin D. net operating income
C
Which of the following are benefits of conducting postaudit?
It provides an opportunity to reinforce and possibly expand successful projects. It will flag any manager's attempts to inflate benefits or downplay costs in a project proposal. It provides an opportunity to cut losses on floundering projects.
The final step in the master budgeting process is to prepare the A. sales budget B. cash budget C. budgeted balance sheet D. budgeted income statement
C
simple rate of return suffers from some important limitations...WHAT?
It uses accounting income instead of cash flows and does not consider the time value of money
Costs incurred up to the point in the split off point in a process in which two or more products are produced from a common input are called ____________ costs
Joint
The split off point is the point in the manufacturing process at which the ___________ products can be recognized as separate process
Joint
What is true of Joint Costs?
Joint Costs are common costs that are incurred to produce two or more products Improper allocation of joint costs can lead to incorrect decisions Allocation of joint costs is needed for inventory valuation
Two or more products produced from a common input are:
Joint Products
To calculate the cash balance before financing on the cash budget A. add the beginning cash to the budgeted cash payments and subtract the budgeted cash receipts B. add the budgeted cash receipts to the budgeted cash payments and subtract the beginning cash balance C. add the beginning cash balance to the budgeted cash receipts and deduct budgeted cash payments D. add the cash borrowed or repaid to the ending cash balance
C
If by dropping a product line a company cannot avoid as much fixed cost as it loses in contribution margin, the company should:
Keep the Product Line
When making a decision A. neither quantitative nor qualitative data should be considered B. only quantitative data should be considered C. both quantitative and qualitative data should be considered D. only qualitative data should be considered
C
Which of the following costs is not likely to be completely eliminated by a decision to drop a product line? A. the variable overhead traced to that product line B. the cost of direct materials used to make the product C. the common fixed costs allocated to that product line D. all of the above will be completely eliminated
C
Which of the following is NOT an important qualitative factor? A. employee morale B. customer loyalty C. cost per unit D. quality considerations
C
Which of the following is NOT considered a direct benefit of budgeting? A. better communication B. motivating employees C. developing new product lines D. forcing managers to think ahead
C
Which of the following is a cost that can be eliminated in whole or in part by choosing one alternative over another? A. variable cost B. sunk cost C. avoidable cost D. irrelevant cost
C
Which of the following is an advantage of budgeting? A. budgets focus on what has happened in the past B. budgets primarily help managers with day to day emergencies C. budgets communicate management's plan throughout the organization
C
Goodstone Tire Corp. sells tires for $90 each. Per unit costs associated with producing and selling the tires are direct materials $35 direct labor $10 factory overhead $20 The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has excess capacity A. there will be no incremental profit or loss from the special order B. the incremental loss from the special order will be $25,000 C. the incremental profit from the special order will be $12,000
C (the revenue per tire is $65 and the cost is $53 (DM, DL, VO), so each tire will generate $12 in incremental profit or $12,000 total)
Parts administration is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Organization-sustaining.
C) Product-level activity.
Which of the following is true of a company that uses absorption costing? A) Net operating income fluctuates directly with changes in sales volume. B) Fixed production and fixed selling costs are considered to be product costs. C) Unit product costs can change as a result of changes in the number of units manufactured. D) Variable selling expenses are included in product costs.
C) Unit product costs can change as a result of changes in the number of units manufactured.
Generally speaking, net operating income under variable and absorption costing will: A) always be equal. B) never be equal. C) be equal only when production and sales are equal. D) be equal only when production exceeds sales.
C) be equal only when production and sales are equal.
In activity-based costing, the activity rate for an activity cost pool is computed by dividing the total overhead cost in the activity cost pool by: A) the direct labor-hours required by the product. B) the machine-hours required by the product. C) the total activity for the activity cost pool. D) the total direct labor-hours for the activity cost pool.
C) the total activity for the activity cost pool.
CM Ratio=
CM / Sales
Contribution Margin Ratio =
CM / Sales
Degree of operating leverage=
CM / net operating income
Change in CM=
CM Ratio X Change in sales
Variable Costing Net Income=
CM X # of units sold - total fixed costs
What is the first step in the management decision-making process?
Identify the problem and assign responsibility.
The use of _______ absorption costing can lead to the omission of segment costs because nonmanufacuting costs are not included as costs of a product.
absorption
Capital budgeting decisions place an emphasis on project cash flows because:
accounting net income ignores when cash flows occur; the timing of cash inflows and outflows is critical in the success and profitability of capital projects.
Synonyms for the simple rate of return are the _____ rate of return and the _____ rate of return.
accounting; unadjusted
An ABC ________ ________ report involves more overhead cost detail than the conventional ABC analysis.
action analysis
The first major step in implementing ABC is to identify the _______ that will form the foundation for the system.
activities
the first major step in implementing ABC is to identify the __ that will form the foundation for the system.
activities
A(n) __ is any event that causes consumption of overhead resources.
activity
A(n) ______ is any event that causes consumption of overhead resources.
activity
In activity-based costing, each cost pool has its own unique measure of _____.
activity
The CVP graph evaluates CVP relationships over a wide range of _______ levels
activity
in activity-based costing, each cost pool has its own unique measure of __.
activity
in activity-based costing, what causes the consumption of overhead resources?
activity
overhead includes both manufacturing and non manufacturing costs under:
activity -based costing
under __ costing, overhead costs are not assigned to products if costs are not specific to products.
activity-base
An event that causes the consumption of manufacturing overhead resources is referred to as a(n) ________.
activity.
An incremental cost is
adding ONE MORE
Required borrowings on a cash budget is calculated by:
adding the desired ending cash balance to the amount of the cash deficiency
required borrowings on a cash budget is calculated by:
adding the desired ending cash balance to the amount of the cash deficiency
Three conditions that NPV must meet
adjusts cash flows for both the time value of money and risk through the choice of discount rate, and the NPV figure itself tells us how much value will be created with the investment
The budget that shows the budgeted expenses for areas other than manufacturing is the ___ and ___ expense budget.
administrative & sales
The receipts section of the cash budget lists:
all cash inflows, except from financing
what is listed in the receipts section of the cash budget?
all cash inflows, except from financing.
Under activity-based costing, overhead includes
all indirect costs.
value chain
all of the activities from development, to production to after sales service
in the total cost approach, ?
all the revenue and costs are displayed in the income statement then the different in NOI between the two alternatives is compared
The contribution margin equals sales minus _______
all variable costs
which of the following can make a product line look less profitable than it really is?
allocated common fixed costs
Activity-based-costing:
allocates overhead to multiple activity cost pools, and it then assigns the activity cost pools to products and services by means of cost drivers.
what is the typical approach to allocating joint costs to products?
allocating the cost based on the relative sales value of the end products
an activity measure in activity-based costing is used as a(n) __ base.
allocation
relaxing the constraint
an action that increases the amount of a constrained resource. Equivalently, an action that increases the capacity of the bottleneck.
Economic Value added (EVA)
an adaptation of residual income that has been adopted by many companies
Payback Period Rule
an investment is acceptable if its calculated payback is less than some prespecified number of years
Discounted payback rule
an investment is acceptable if its discounted payback is less than some prescribed number of years
IRR Rule
an investment is acceptable if the IRR exceeds the required return. it should be rejected otherwise
Average accounting return
an investment's average net income divided by its average book value
A type of cognitive bias that comes from attaching credibility to a false piece of information which leads to distorted analysis is referred to as _____ bias.
anchor
The simple rate of return is obtained by dividing the ________ by the initial investment in the project.
annual incremental net operating income
"Investment required" refers to...
any cash outflow that occurs at the beginning of the project.
constriant
anything that prevents an organization from satisfying demand o Favor the products that provide the highest contribution margin per unit of the constrained resource
Period Cost
are all the costs that are not product costs. All selling and administrative expenses are treated as period costs.
Master budget schedules:
are based on estimates and assumptions, answer several key questions for a company
unavoidable cost
are incurred under all alternatives, thus they are irrelevant.
Unavoidable Cost
are irrelevant costs
joint cost:
are irrelevant in decisions regarding what to do with a product after split-off cannot be avoided once a process is started although the allocation of joint product cost is needed for some purposes, such as balance sheet inventory valuation, allocations of this kind are extremely misleading for decision making. The In Business box "Getting It All Wrong" illustrates an incorrect decision that resulted from using such an allocated joint cost.
joint costs incurred prior to the split-off point __ relevant in decisions regarding what to do from the split-off point forward.
are not
Direct Materials
are those materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product.
Highly achievable budget targets:
are used in most companies; may help build manager confidence; & may generate greater management commitment to the budget
if a cost is traced to a segment using activity-based costing
as discussed in an earlier chapter, activity-based costing can be used to help identify potentially relevant costs for decision-making purposes. Activity based costing improves the tractability of costs by focusing on the activities caused by a product or other segment. However, managers should excercise caution against reading more into this "traceability" than really exist. People have a tendency to assume that if a cost is traceable to a segment, then the cost is automatically an avoidable cost. That is not true because the costs provided by a well-designed activity-based costing system are potentially relevant. Before making a decision, managers must still decide which of the potentially relevant costs are actually avoidable. Only those costs that are avoidable are relevant and the others should be ignored. IT MAY OR MAY NOT BE AN AVOIDABLE COST OF THE SEGMENT
Budget reports should be prepared:
as frequently as needed.
intermediate product
as it applies to sell or process further decision, intermediate product is in the process of being made
Working capital is current minus current .
assets; liabilities
if actual results do not measure up to budgeted goals, a manager should:
attempt to correct any unfavorable discrepancies
Managers may choose to retain an unprofitable product line because it
attracts customers it helps to sell other products
Cost of capital
average rate of return that must be paid to long-term creditors and shareholders for use of their funds
cost of capital
avg. rate of return that must be paid to long term creditors and shareholders for use of their funds
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n):
avoidable
A(n) __________ cost is a cost that can be eliminated by choosing one alternative over another.
avoidable
a cost that can be eliminated by choosing one alternative over another is a(n) ______ cost
avoidable
a(n) __ cost is a cost that can be eliminated by choosing one alternative over another.
avoidable
one of the benefits of dropping a product line is that a company can eliminate the product line's _________ fixed costs
avoidable
when identifying costs that are differential, a manager would eliminate costs and benefits that do not differ between alternatives and use the remaining costs and benefits that do differ between alternatives in making the decision. The costs that remain are the differential or __ costs.
avoidable
Costs that can be avoided by choosing one option over another is an _____ _____
avoidable cost
_____ _____ is a cost that can be avoided by choosing one decision option instead of another
avoidable cost
what cost is a cost that can be eliminated by choosing one alternative over another?
avoidable cost
which of the following is a cost that can be eliminated in whole of in part by choosing one alternative over another?
avoidable cost
When making a decision to either go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of the DVD would be eliminated. This is an example of a(n):
avoidable cost relevant cost
An _____ cost is one that can be avoided by selecting a particular decision alternative. It's a _____ cost because it will differ between decision alternatives
avoidable, relevant
Only costs that can be ______ are relevant when deciding to eliminate a product line.
avoided
Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets Blissful Blankets needs to sell in order to achieve its target profit is: a. 9,524 b. 40,000 c. 24,762 d. 15,200
b
Chitter Chatter sells phones and has set a target profit $975,000. The contribution margin ratio is 65%, and fixed costs are $195,000. Sales dollars needed to earn the target profit total: a. $1,170,000 b. $1,800,000 c. $1,200,000 d. $760,500
b
The target profit at the break-even point is: a. the value of total variable cost b. zero c. the contribution margin
b
When referring to a company with multiple products, which of the following statements i correct? a. a change in the sales mix will have no effect b. a change in the sales mix will most likely result in a change to the break-even point c. a change in the sales mix will always result in an increase to profits d. the sales mix may never be changed
b
Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3,200 per month. The number of bottles that must be sold each month to earn the target profit is: a. 7,200 b. 4,800 c. 534 d. 267
b Unit sales to attain the target profit = (target profit + fixed expenses) / unit CM
Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has: a. earned a net operating profit b. reached the break-even point c. a contribution margin equal to fixed costs d. incurred a net operating loss
b & c
The profit graph allows users to easily identify: a. total expenses incurred at any given sales volume b. the sales volume required to reach the break-even point c. the profit at any given sales volume
b & c
Pete's Putters sells each putter for $125. The variable cost is $60 per butter and fixed costs total $400,000. Based on this information: a. Pete's Putters unable to make a profit b. the sale of 12,000 putters results in net operating income $380,000 c. lowering variable cost per unit to $45 would result in a contribution margin of $70 per unit d. the contribution margin per putter is $65
b & d
Which of the following are assumptions of cost-volume-profit analysis? a. variable costs per unit increase over the relevant range of activity b. costs are linear and can be accurately divided into variable and fixed elements c. fixed costs per unit stay the same within the relevant range d. in multi-product companies, the sales mix is constant
b & d
What report shows the costs assigned to cost objects and the difficulty in adjusting the cost for changes in activity? a) External report b) Action analysis report c) Ease of adjustment report d) Conventional analysis
b) Action analysis report
Which group is likely to be uncomfortable using ABC allocations that are based on personnel interviews? a) Shareholders b) Auditors c) Employees d) Board of directors
b) Auditors
Which of the following types of costs are unaffected by which products are made during a period? a) Unit-level costs b) Organization-sustaining costs c) Customer-level costs d) Batch-level costs e) Product-level costs
b) Organization-sustaining costs
Which of the following is an example of a transaction driver? a) The number of hours spent setting up equipment b) The number of bills sent out to a customer c) The time spent preparing invoices d) The time spent repairing equipment
b) The number of bills sent out to a customer
Overhead includes both manufacturing and nonmanufacturing costs under: a) both activity-based and traditional costing b) activity-based costing c) traditional costing d) neither activity-based or traditional costing
b) activity-based costing
Under activity-based costing, overhead includes: a) only indirect non-manufacturing costs b) all indirect costs c) only indirect manufacturing costs d) both direct and indirect costs
b) all indirect costs
Computing overhead costs to be assigned to products for an action analysis report: a) calculates a single cost number for each cost pool b) includes a color-coding scheme to help with adjustments c) provides less detail than conventional ABC analysis d) results in a cost matrix.
b) includes a color-coding scheme to help with adjustments d) results in a cost matrix.
In the 19th and 20th centuries, cost systems relied on allocation bases such as: (Check all that apply.) a) the number of products sold. b) machine hours. c) the number of products made. d) labor hours.
b) machine hours. d) labor hours.
Factors which determine whether a cost structure with higher variable costs is better than one with higher fixed costs include: a. average sales price per unit b. long-run trends in sales c. the attitude of owners toward risk d. year-to-year fluctuations in the level of sales
b, c, d
The break-even point calculation is affected by: a. number of batches produced b. costs per unit c. sales mix d. selling price per unit
b, c, d
The contribution margin income statement allows users to easily judge the impact of a change in _______ on profit a. organizational structure b. cost c. selling price d. volume
b, c, d
Which of the following must be subtracted from sales to reach the contribution margin? a. fixed overhead b. variable overhead c. variable direct materials d. fixed selling and administrative costs e. variable direct labor f. variable selling and administrative costs
b, c, e, f
AHxSR - SHxSR
Labor Efficiency Variance Formula
AHxAR - AHxSR
Labor Rate Variance Formula
Top management support is needed when ABC is implemented because:
Leadership is instrumental to motivating employees to embrace ABC
_____ are made by selecting the cheapest alternative and do not involve any revenues
Least cost decisions
In a situation where the capital project will create no additional revenue for the company, the most desirable alternative is the one with the:
Least total cost from the present value perspective
In a situation where the capital project will create no additional revenue for the company, the most desirable alternative is the one with the:
Least total cost from the present value perspective.
A capital investment project's payback period is the:
Length of time it takes for the project to recover its initial cost from the net cash inflows generated
When considering a purchase equipment, discounting is necessary because future cost savings are worth _____ today than they actually are in the future
Less
When considering an equipment purchase, discounting is necessary because future cost savings are worth today than when they actually occur in the future.
Less
Manufacturing Overhead Budget
Lists all costs of production other than direct materials and labor
Selling and Aminisrative expense budget
Lists the budgeted expenses for areas other than manufacturing
Production Budget
Lists the number of units that must be produced to satisfy sales needs and to provide the desired ending finished goods inventory
The term capital budgeting is used to describe how managers plan significant investments in projects that have ___ implications.
Long-term
Responsibility
Lower-level managers decision making authority can be linked to the outcomes of those decisions through ______ accounting systems
the concept of the time value of money is based on the notion that a dollar today is worth MORE/LESS than a dollar a yr from now
MORE
The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is:
Machine hours
A decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier is called a(n) _______________ or _____________ decision
Make or Buy Decision
The concept that focuses on important variances and ignores trivial ones are:
Management by exception
Capital budgeting
Managers plan significant investments in projects that have long-term implications.
all cost of production other than direct materials and direct labor are shown on the ________
Manufacturing overhead budget
Net Operating Income / sales
Margin Formula
Margin of Safety %=
Margin of safety in dollars / total budgeted (or actual) sales
a number of separate but interdependent budgets that formally lay out a company's sales, production, and financial goals is contained in the ___ budget
Master
An essential tool management tool that communicates management's plans throughout the organization allocates and coordinates the activities is the:
Master Budget
AQxAP - AQxSP
Materials Price Variance Formula
AQxSP - SQxSP
Materials Quantity Variance Formula
Under ABC, non manufacturing costs:
May be allocated to products based on cause
Disadvantages of the Profitability Index Rule
May lead to incorrect decisions in comparisons of mutually exclusive investments
Costs that are relevant in a given situation:
May not be relevant in another decision situation
A company with adequate cash balances at the beginning and end of the year:
May still have cash deficiency issues during the year
Materials Price Variance
Measures the difference between an inputs actual price and its standard price, multiplied by the actual quantity purchased
The amount of goods for resale to be purchased from suppliers during the period is shown on the ______ ______ budget.
Merchandise purchases
The required rate of return is the ___ rate of return a project must yield to be acceptable.
Minimum
The required rate of return is the _____ rate of return a project must yield to be acceptable
Minimum
The required rate of return is the rate of return a project must yield to be acceptable.
Minimum
Using a budget to blame or pressure employees lead to:
Mistrust
A dollar today is worth ____ than a dollar earned a year from now
More
The concept of the time value of money is based on the notion that a dollar today is worth (more/less) than a dollar a year from now
More
The concept of the time value of money is based on the notion that a dollar today is worth ___ than a dollar a year from now.
More
The concept of the time value of money is based on the notion that a dollar today is worth than a dollar a year from now
More
One dollar earned today is worth:
More than one dollar earned at a future point in time
One dollar earned today:
More than one dollar earned at a future point in time
A dollar today is ___ a dollar received a year from today.
More valuable than
The best investment when choosing between mutually exclusive investments would be the one with a higher
NPV
Earnings Per Share =
Net Income / Average number of common shares outstanding
The decision to add or drop a product line should be based on the impact the decision will have on:
Net Operating Income
Residual Income =
Net Operating Income - Avg Operating assets x minimum required rate of return
Return On Investment =
Net Operating Income / Avg Operating Assets
Unlike other capital budgeting methods, the simple rare of return method focuses on ___, rather than ___.
Net Operating Income; Cash Flows
When a conflict between capital budgeting method exists, the most reliable method to use for making preference decisions is:
Net Present Value
When a conflict between capital budgeting methods exist, the most reliable method to use for making preference decisions are:
Net Present Value
Project Profitability Index
Net Present value of the project / Investment required
What is subtracted from total budgeted selling and administrative expenses to determine the cash disbursements for selling and administrative expenses?
Non-cash expenses
Which of the following should not be included in the analysis when making a decision?
Non-differential future costs Sunk costs
A significant amount of funding from sources other than sales usually occurs in ___ organizations
Nonprofit
An example of a transaction driver is the:
Number of bills sent out to a customer
Which of the following information is contained on a time ticket?
Number of jobs worked, nature of indirect tasks worked, and amount of time spent on each job.
In activity based costing, first stage allocation assigns _________ cost to activity cost pools
OVERHEAD
n activity based costing, first stage allocation assigns _________ costs to activity cost pools
OVERHEAD
If some products are overcosted and some are undercosted the errors will:
Offset each other in COGS and inventory valuations
Working capital:
Often increases after a company takes on a new project
Working capital
Often increases when a company takes on a new project.
3 Common mistakes made by companies when assigning costs to segments include:
Omitting Costs Inappropriately assigning traceable fixed costs Randomly allocate common fixed costs
making decision
One of the basic functions of a manager =
Operating budgets usually cover ___ budgets
One-year
Comparing actual costs to the static planning budget is:
Only appropriate if all costs are fixed
contribution margin
Only drop a segment if the fixed costs you save by dropping the segment are greater than the ~ you lose by dropping the segment.
If a company has a resource that could be used for something else, the _____________ cost is the profit that could be derived from the best alternative use of the resource
Opportunity
The potential benefit given up when selecting one alternative over another is a(n) __________ cost
Opportunity
Actual cash outlays for operating expenses are:
Out-of-pocket Costs
Abba, Inc. is considering dropping a product line. During the prior year, the line had sales of $207,000 and a contribution margin of $124,000. Fixed expenses consist of: Salaries $60,000 Rent $50,000 Advertising $20,000 Administrative $35,000 Total Fixed Expenses $165,000 The product line manager's $60,000 salary is avoidable as is the $20,000 of advertising. Of the administrative expenses, $10,000 is avoidable. The rest are general allocated expenses that will not change if the product is dropped. The rent expense is allocated to product lines based on sales and represents a share of the total cost for the building. If this product line is dropped, what will happen to the company's overall net income?
Overall net income will decrease by $34,000. The company will lose the $124,000 contribution margin. Only $90,000 of the fixed costs (salary, advertising, and $10,000 of administrative) are avoidable, so net income will decrease by $34,000.
Usually, traditional costing __ high-volume products and __ low-volume products
Overcosts, undercosts
What is the formula for finding present value?
P= Fn / (1+r)^n
Activity-based costing treats organization-sustaining costs as __ costs.
PERIOD
In traditional costing, which type of cost is NOT included in the product margin?
PERIOD
ABC cost uses more cost ______ than traditional costing
POOLS
The ___ period does not focus on a project's profitability, but rather on a project's ability to earn a quick return.
Payback
The _____ period does NOT focus on a project's profitability, but rather on a projects ability to earn a quick return
Payback
The period does not focus on a project's profitability, but rather on a project's ability to earn a quick return.
Payback
The ___ period and the simple rate of ____ are tools used to make capita budgeting decisions.
Payback<br>return
Which of these managerial accounting functions are relevant to business majors, such as marketing and human resource management?
Planning, Controlloing, and decision making.
Budgeting is usually most closely associated with which management function?
Planning.
If a company's minimum required rate of return is used as the discount rate, a project with a:
Positive net present value will have a rate of return that exceeds the minimum required rate of return. Negative net present value is unacceptable.
Match the following Categories of capital budgeting decisions with their description.
Preference Decisions- Relate to selecting from among several acceptable alternatives. Screening Decisions- Relate to whether a proposed project is acceptable.
Which is the last step in developing the master budget?
Preparing the budgeted balance sheet.
The term discounting cash flows refers to the process of calculating the ___ value of those cash flows.
Present
The factor of the internal rate of return for a capital investment project is 4,329. If the equal annual cash flows for the project are expected to last 5 years, which of the following tables can be used to find the internal rate of return by locating the column where the 5 period line contains the factor 4,329?
Present value of an annuity
Designing and advertising a product are all __-level activities
Product
In ABC, ____ are different from those calculated using traditional costing
Product margins
which of the following budgets are directly based on information from the sales budget
Production budget, selling and administrative expense budget
Profit=..... using the CM Ratio Change in profit=..... using the CM Ratio
Profit = CM Ratio X Sales - Fixed expenses or Change in Profit = CM Ratio X Change in Sales - Change in FE
The most common reports prepared using ABC data are the product and customer __ reports
Profitability
Effectively managing an organization's constraints is a key to increased
Profits
what are most common measurements used to rank acceptable investment projects?
Project profitability index<br>Internal rate of return
The basic premise of the payback method is that the more ___ the cost of an investment can be recovered, the more desirable the investment is.
Quickly
Net Operating Income / Avg Operating Assets
ROI Formula
(Select the terms that are interchangeable with the term PREFERENCE DECISION)
Ranking Decision and Rationing Decision
The discount rate can also be referred to as the minimum required ___ of ___.
Rate of Return
Internal rate of return
Rate of return promised by an investment over its useful life
Which of the following statements are true?
Raw materials used in production are transferred to WIP as direct materials and when materials are purchased they are recorded in the raw materials inventory account.
Match the ease of adjustment code with the correct cost for these costs: Building lease Selling expense Shipping cost
Red cost - Building lease Yellow cost - Selling expense Green cost - Shipping cost
Preference decisions
Relate to selecting from among several acceptable alternatives
Screening decisions
Relate to whether a proposed project is acceptable
A screening decision:
Relates to if the product is acceptable
Preference decisions:
Relates to selecting from acceptable alternatives.
The best way to handle a constrained resource is to ____________ the capacity of the bottleneck
Relax
Only rarely enough will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating ____________ costs desirable
Relevant
When identifying costs that are differential, a manager would eliminate costs and benefits that do not differ between alternatives and use the remaining costs and benefits that do differ between alternatives in making the decision. The costs that remain are the differential or _____________ costs
Relevant
When planning a trip and making a decision to drive or take the train the cost of car repairs and maintenance is a(n) __________ cost
Relevant
When planning a trip and deciding to drive your car or take the train gasoline is a:
Relevant Cost
A company should consider _blank_ when making a decision.
Relevant costs and benefits.
Only those costs and benefits that differ in total between alternatives are _blank_ in a decision.
Relevant. (aka differential cost and differential revenue)
Isabella Canon is considering taking a part time job at a local clothing store. She loves the store and shops there often, but unfortunately, employee discounts are given only to full time employees. If Isabella takes this job, she would have to withdraw from her Tuesday night basket weaving class to work. Accepting the job would also mean that Isabella must give up her volunteer work at the local animal sanctuary, an activity that she enjoys a great deal. The new job would pay approx. $125 per week but would cost Isabella $15 per week in gas. Isabella would be able to keep her Saturday afternoon job at the library that pays $40 per week. Identify if these factors are relevant or irrelevant to Isabella's decision 1. The $125 income from her new job 2. The $40 income from the library 3. The $50 nonrefundable registration fee Isabella paid for the basket weaving class 4. The $15 cost for gas 5. The $75 per month that Isabella spends on clothing 6. The time Isabella spends volunteering at the animal sanctuary
Relevant= 1, 4, 6 irrelevant= 2, 3, 5
Absorption costing is: Required by GAAP and IFRS Used by most companies for both internal and external reports Rarely Used The preferred method for internal decision making
Required by GAAP and IFRS Used by most companies for both internal and external reports
Net Operating Income - Avg Operating assets x minimum required rate of return
Residual Income Formula
Net Operating Income - avg operating assets x min. rate of return
Residual Income Formula
The underlying idea behind ____ accounting is that a manager should be held accountable for only those items the manager can actually control
Responsibility
Activity rates are used to apply overhead costs to products and customers in the _____ stage allocation
SECOND
Materials Quantity Variance =
SP x AQ-SQ
Labor Efficiency Variance =
SR x AH-SH
Variable Overhead Efficiency Variance =
SR x AH-SH
1
STEP ___ OF DECISION MAKING: -- eliminate costs and benefits that do not differ between alternatives (unavoidable costs)
2
STEP ___ OF DECISION MAKING: -- use the remaining costs and benefits that differ between alternatives in making the decision. The costs that remain are the differential, or avoidable, costs.
An ABC system usually _______ a traditional cost system
SUPPLEMENTS
Joint costs are traditionally allocated among different products at the split off point. A typical approach is to allocate the joint costs according to the relative ___________ value of the end products
Sales
Format for a Segmented Income Statements in the Contribution Format
Sales Variable Expenses Contribution Margin Traceable Fixed Expenses Divisional Segment Margin Common Fixed Expenses not traceable to individual divisions Net Operating Income
Absorption Costing Income Statement
Sales CGS Gross Margin Selling and Administrative Expenses Net Operating Income
Contribution Margin =
Sales - Variable Expenses
What is the starting point for the Master Budget?
Sales Budget
Contribution Margin
Sales minus variable cost.
To calculate total sales on the sales budget, multiply budgeted sales in units by:
Sales price per unit
The equation which reflects a CVP income statement is:
Sales-Variable costs-Fixed costs=Net income.
The investment value used in the payback period calculation when new equipment is being considered should be the cost of the new equipment net of any ___ value from the old equipment being replaced.
Salvage
When using the simple rate of return, the initial investment should be reduced by the ___ value of old equipment.
Salvage
(Match each capital investment cash flow with the appropriate category)
Salvage Value - Inflow Initial Investment - Outflow Working Capital - Inflow and Outflow
Which of the following are NOT typical capital budgeting cash outflows?
Salvage value of old equipment; Cost reduction
Which of the following are not typical capital budgeting cash outflows?
Salvage value of old equipment; cost reduction
Comparing a project's rate of return to its cost of capital is a ___ decision.
Screening
Comparing a projects rate of return to its cost of capital is a decision
Screening
One of the two broad categories of capital budgeting decisions, a ___ decision, relates to whether a proposed project is acceptable based on a present criterion.
Screening
The two broad categories into which capital budgeting decisions fall are ___ decisions and ___ decisions.
Screening and Preference
The two broad categories into which capital budgeting decisions fall are:
Screening decisions Preference decisions
two categories
Screening decisions and Preference decisions
Activity based costing uses activity rates to apply overhead costs to products in _______ allocation
Second stage
Dollar Sales for a segment to break even=
Segment traceable FE / Segment CM Ratio
segment Margin=
Segments CM - Traceable FC represents the margin available after a segment has covered all of its own traceable costs
A manager cannot complain that the budget was unrealistic and impossible to meet when a _____ budget
Self-imposed
Deciding what to do with a joint product is a(n) ____________ or __________ ___________ decision
Sell or Process Further
Deciding what to do with a joint product at the split-off point is a ?
Sell or process further decision (Sprinkle donuts).
Deciding what to do with a joint product at the split-off point is a ______ or ______ ______ decision.
Sell, Process, Further
Unit Contribution Margin (CM)=
Selling Price Per Unit - Variable Expenses per Unit
Budgeted expenses for areas other than manufacturing are shown on the _____ budget
Selling and Administrative
Which of the following are ways to increase the capacity of a bottleneck?
Shifting workers from processes that are not bottlenecks to the process that is the bottleneck Investing in additional machines at the bottleneck
Merchandise Purchase Budget
Shows the amount of goods to be purchased from suppliers during the period
Direct Labor Budget
Shows the direct-labor hours required to satisfy the production budget
Which of the following are tools that can help managers to make capital budgeting decisions that do not involve present value?
Simple rate of return Payback period
How is the payback period calculated?
Simply adding the future cash flows-- there is no discounting involved
special order
Since the existing fixed MOH costs would not be affected by a __ __, they are not relevant.
When a company plans to sell a piece of equipment for $15,000 five years from now, to find its present value you must discount a(n)
Single sum
What is the underlying idea behind responsibility accounting?
Someone must be held responsible for each cost or the cost will grow out of control.
Which of the following does not have an opportunity cost?
Space being used that has no alternative cost.
A one-time order that is not considered part of the company's normal on going business is referred to as a(n) ___________ ____________ decision
Special Order
A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n)________decision.
Special order
management, exception
Standard costs are a key element in the ______ by ______ approach utilized by some companies
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are _______ costs
Sunk
What 2 types of costs are never relevant to a decision?
Sunk and Future Costs
T
T/F: Allocation of joint costs is needed for inventory valuation.
T
T/F: Improper allocation of joint costs can lead to incorrect decisions.
T
T/F: Joint costs are common costs that are incurred to produce two or more products.
T
T/F: Joint costs are irrelevant in decisions regarding what to do with a product from the split-off point forward.
T
T/F: Joint costs should not be allocated for decision making.
T
T/F: Total contribution margin will be maximized by promoting those products or accepting those orders that provide the highest contribution margin in relation to the constraining resource.
A company that is a price taker would most likely use which of the following methods?
Target costing.
fixed
The % change in net income in the flexible budget is greater than the percentage change in activity due to ______ costs
A set of activities ranging from development to production to after sales service is called
The Value Chain
Error that occurs when the level of activity is estimated incorrectly
The Volume variance is the:
Standard
The amount of an input that should have been used to produce the actual output is known as the _______ quantity or hours allowed
What is the cost of capital?
The average rate of return a company must pay to its long-term creditors and shareholders for the use of their funds
What is the cost of Capital?
The average rate of return a company must pay to its long-term creditors and shareholders for the use of their funds.
Cost of capital
The average rate of return a company must pay to its long-term creditors and shraeholders for the use of their funds.
Which of the following is needed to prepare a sales budget?
The budgeted number of units to be sold
management by exception
The concept that focuses on important variances and ignores trivial ones is
Which of the following statements regarding net present value and income taxes are true?
The cost of capital should be based upon after-tax costs. Income taxes on both revenues and expense should be considered in net present value analysis.
Why is the unit product cost different from the cost that would be incurred if another unit were produced?
The cost to produce another unit is the incremental or magical cost.
net operating income
The decision to add or drop a product line should be based on the impact the decision will have on ~.
Activity Variance
The difference between a revenue or cost item in the static planning budget and the same item in the flexible budget at the actual level of activity
The net present value of a project is:
The difference between present value of cash inflows and present value of cash outflows for a project. Used in determining whether or no a project is an acceptable capital investment.
Spending Variance
The difference between the actual amount of the cost and how much a cost should have been, given the actual level of activity
efficiency
The difference between the actual hours used and the standard hours allowed for the actual output is used in the calculation of the labor ______ variance
Revenue Variance
The difference between the actual total revenue and what the total revenue should have been, given the actual level for the period
Net present value
The difference between the present value of an investment project's cash inflows and the present value of its cash outflows.
the net present value of a project is:
The difference between the present value of cash inflows and present value of cash outflows for a project.<br>Used in determining whether or not a project is an acceptable capital investment.
The net present value of a project is:
The difference between the present value of cash inflows and the present value of cash outflows for a project; Used in determining whether or not a project is an acceptable capital investment
Internal rate of return
The discount rate at which the net present value of an investment project is zero; the rate of return of a project over its useful ife.
Denominator
The estimated amount of the allocation base used in the formula for the pre determined overhead rate is called the ______ activity
An investment requires committing funds today with:
The expectations of earning a return on those funds in the future
The basic premise of the payback method is _________, the more desirable the investment
The faster the cost of the investment is recovered
The basic premise of the payback method is:
The faster the cost of the investment is recovered, the more desirable the investment
Postaudit
The folow-up after a project hs been approved and implemented to determine whether expected results were actually realized.<br><br>the data used in the postaudit analysis should be the actual observed data rather than the estimated data
The rule used when comparing investments is:
The higher the project profitability index, the more desirable the project
Match the following internal rate of return and required rate of return comparisons with the appropriate conclusions about a proposed project.
The internal rate of return is equal to or greater than the required rate of return: The project is considered to be acceptable. The internal rate of return is less than the required rate of return: The project should be rejected
Production
The labor rate variance is typically the responsibility of the ______ supervisor
A capital investment project's payback period is the:
The length of time is takes for the project to recover its initial cost from net cash inflows generated.
Payback period
The length of time that it takes for a project to recover its initial cost from the net cash inflows that it generates<br>"The time that it takes for an investment to pay for itself"
bottleneck
The machine or process that is limiting overall output is called the ___; the constraint
Which of the following statements are true?
The more frequently interest is compounded, the faster the balance grows; Compound interest means that interest is paid on interest
Which of the following is considered a sunk cost when planning a trip?
The original cost of the car
The payback method:
The payback method does not consider the time value of money Ignores all cash flows that occur after the payback period. Is not a true measure of investment profitability
Shortcomings of the payback method when making a capital investment decision include:
The payback method does not consider the time value of money; The payback method ignores all cash flows that occur after the payback period
Shortcomings of the payback period when making a capital investment decision include:
The payback period does not consider the time value of money. The payback period ignores all cash flows that occur after the payback period.
ABC Lumber spend $1,000 cutting down a tree. The result was 40 pieces of unfinished lumber that sell for $20.00 each and 100 bags of sawdust that sell for $1.00 each. If the unfinished pieces of luber are processed into finished luber at a cost of $8.00 each, they will sell for $35.00. A bag of sawdust can be processed into Presto Logs that sell for $1.25 at a cost of $0.75 per bag. Which of the following statements are true concerning whether the unfinished pieces of lumber should be processed into finished lumber and whether the sawdust should be processed into Presto Logs?
The pieces of unfinished lumber should be processed. The pieces of lumber have an incremental revenue of $15 ($35 - $20) and an incremental cost of $8 so they should be procesed. The sawdust should be sold as is without being processed into Presto Logs. The sawdust has an incremental revenue of $.25 ($1.25 - $1.00) and an incremental cost of $.75 so it should be sold as is.
split-off point
The point in the manufacturing process where each joint product can be recognized as a separate product is called the ~.
Acceptable project with a net present value of zero
The project promises a return equal to the required rate of return
Acceptable project with a positive net present value
The project promises a return greater than the required rate of return
Unacceptable project with a negative net present value
The project promises a return less than the required rate of return
The internal rate of return method indicates
The rate of return promised by an investment project over its useful life
Which of the following are characteristics of the simple rate of return method for evaluating capital investment proposals?
The simple rate of return fluctuates from year to year along with fluctuations in revenue and expense; The simple rate of return ignores the time value of money
Which of the following are characteristics of the simple rate of return method for evaluating capital investment proposals?
The simple rate of return fluctuates from year to year along with fluctuations in revenue and expense; the simple rate of return ignores the time value of money
Which of the following characteristics of the simple rate of return method for evaluating capital investment proposals?
The simple rate of return ignores the time value of money. The simple rate of return fluctuates from year to year along with fluctuations in revenue and expense.
Actual Output x Standard Quantity
The standard quantity allowed for production equals
Budgetary slack occurs when a manager submits a budget that is:
Too easy to attain
Mixed Cost Formula
Total Fixed Cost + Variable Cost per unit of activity x activity level
Debt-to-Equity Ratio =
Total Liabilities / Stockholders Equity
Margin of Safety in dollars=
Total budgeted (or actual) sales - BE Sales
The _______ allows for the comparison of an unlimited number of alternatives side by side to determine the best alternative.
Total cost approach
Activity rates =
Total cost of each activity/total activity
Variable expenses ratio
Total variable expenses / total sales dollars
All cash flows are included in calculating the net present value for each alternative.
Total-cost approach
Costing method assigns ONLY manufacturing costs to products:
Traditional absorption costing
Match the following words with the correct description. Transaction driver Duration driver Activity measure Activity cost pool
Transaction driver - Number of times an activity occurs Duration driver - Amount of time to perform an activity Activity measure - Cost driver Activity cost pool - Amount of costs accumulated for a single activity
When computing net present value after tax, income tax expense is:
Treated like every other cash flow
A company has two divisions, each selling several products. If segment reports are prepared for each product, the division managers' salaries should be considered as common fixed costs of the products.
True
A traditional cost system is generally easier to set up and run than an activity-based costing system.
True
Absorption costing treats all manufacturing costs as product costs.
True
Activity-based costing is a costing method that is designed to provide managers with product cost information for internal decision-making.
True
An activity rate of $512 per product design means that on average a product design consumes resources that cost $512.
True
As the number of activities increase, the cost to implement an ABC system also increases.
True
If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost should be considered a common cost.
True
In the first-stage allocation in an ABC system, some costs may be allocated to a special cost pool that are not subsequently allocated to products or customers.
True
Managing and sustaining product diversity requires many more overhead resources such as production schedulers and product design engineers than managing and sustaining a single product. The costs of these resources can be accurately allocated to products using activity- based costing than traditional costing which is based entirely on direct labor-hours.
True
Organization-sustaining activities are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made.
True
Segment margin is sales less variable expenses less traceable fixed expenses.
True
Some manufacturing costs may be excluded from product cost when using ABA
True
The first-stage allocation in an ABC system is the process of assigning functionally organized overhead costs derived from the company's general ledger to activity cost pools.
True
To compute a product's profit or product margin, the product's sales and direct costs are needed in addition to the overhead costs computed in an activity-based costing system.
True
True of False: The monthly fee that a student pays to park at school is not relevant when deciding whether to take a train or drive for a weekend trip to visit an out-of-town friend.
True
True or False: The monthly fee that a student pays to park at school is not relevant when deciding whether to take the train or drive for a weekend trip to visit an out of town friend
True
True or False: Allocating joint costs to products at the split off point is misleading for decision making about the products
True
True or False: When calculating the payback period, the annual net operating income should be increased by any depreciation the results from the investment.
True
True or false: Effectively managing an organization's constraints is a key to increased profits.
True
True or false: Extrinsic rewards can lead to dysfunctional consequences.
True
True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.
True
Under variable costing, all variable production costs are treated as product costs.
True
Under variable costing, only variable production costs are treated as product costs.
True
Variable costing is more compatible with cost-volume-profit analysis than is absorption costing.
True
Variable manufacturing overhead costs are treated as product costs under both absorption and variable costing.
True
mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.
True
the monthly fee that a student pays to park at school is not relevant when deciding whether to take a train or drive to visit an out-of-town friend.
True
Sales / Avg Operating assets
Turnover Formula
power to run production equipment would be a _____-level activity
UNIT
Match the net present value analysis with the appropriate reasoning.
Unacceptable project with a negative net present value- The project promises a return less than the required rate of return. Acceptable project with a net present value of zero- The project promises a return equal to the required rate of return Acceptable project with a positive net present value- The project promises a return greater than the required rate of return.
When making decisions using ABC data:
Unavoidable fixed costs should be ignored
Expenses: Actual Rev. > Budgeted Rev. =
Unfavorable
Determining costs of good sold on the budgeted income statement and valuing ending inventories requires the:
Unit Product Cost
Match the following activity levels in activity-based costing with the correct activity. Unit-level Batch-level Product-level Customer-level Organization-sustaining
Unit-level - Power to run production equipment Batch-level - Machine set-up Product-level - Product design Customer-level - Sales calls Organization-sustaining - Factory cooling system
Variable Expense Ratio=
VE / Sales
When preparing a CM income statement, CGS consist of only ______ manufacturing costs
Variable
Variable cost and Relevant Cost ARE NOT the same thing
Variable cost and Relevant Cost ARE NOT the same thing
How do variable costs change in total and per unit as activity changes?
Variable cost per unit remains constant
A ______ costing income statement focuses on fixed and variable expenses, while a(n) ______ costing income statement focuses on period and product costs
Variable, absorption
When a company is involved in more than one activity in the entire value chain it is _____________ _______________
Vertically Integrated
Fixed Component of the predetermined Overhead Rate x Denominator hours - standard hours allowed for the actual output
Volume Variance Formula
budgeted and applied fixed overhead
Volume variance is the difference between:
Increases ROI overtime
What does using net book value (instead of gross cost) to calculate avg operating assets do to ROI overtime?
fixed costs saved > CM lost
What is the decision rule about dropping a segment?
Quantity Standards
What specifies how much of an input should be used to make a product or provide a service
constraint
When a limited resource of some type restricts the company's ability to satisfy demand, the company is said to have a ___.
incremental
When analyzing a special order, only the ___ costs and benefits are relevant
Diggs, Inc. has excess capacity. Under what situation(s) should the company accept a special order for less than the current selling price?
When incremental revenues exceed incremental costs.
contribution margin
When making a product line decision, a company may focus on lost __ __ and avoidable fixed costs or prepare comparative income statements.
What is the distinction between ROI and RI when evaluating managers?
When residual income is used to measure performance, the objective is to maximize the total amount of residual income, not to maximize ROI. If the objective were to maximize ROI, then every company should divest all of its products except the single product with the highest ROI
When should a special order be accepted?
When the incremental revenue exceeds the incremental costs from the order
When should a special order be accepted?
When the incremental revenue from the special order exceeds the incremental costs of the order
A product requires processing in two departments, Department A and then Department B, before it is completed. Costs transferred out of Department A will be transferred to:
Work in Process-Department B.
Current assets minus current liabilities is called ___ ___.
Working Capital
Cash INflow
Working capital is released for use elsewhere within the company
Cash Inflow:
Working capital is released for use elsewhere within the company
Cash Outflow:
Working capital is tied up for project needs
Cash outflow
Working capital is tied up for project needs
Match each capital investment cash flow with the appropriate category.
Working capital- inflow and outflow Initial Investment-outflow Salvage value-inflow
The internal rate of return method identifies the rate of return promised by an investment project over its useful life by finding the discount rate that results in a net present value of ___
ZERO
The internal rate of return method identifies the rate of return promised by an investment promised by an investment project over its useful life by finding the discount rate that results in a net present value of .
Zero
If the total contribution margin is less than the total fixed expenses, then a ________ will occur a. net loss b. net profit c. break-even point
a
The measure of how a percentage change in sales affects profits at any given level of sales is the: a. degree of operating leverage b. contribution margin ratio c. margin of safety
a
The variable expense ratio is the ratio of variable expense to: a. sales b. the contribution margin c. fixed expense d. net operating income
a
A company is currently selling 10,000 units of product. The selling price is $40 per unit and the contribution margin is $27 per unit. The company thinks spending $50,000 on advertising will increase sales by 750 units per month and allow them to increase the selling price to $45 per unit. If this is correct, the company should: a. accept the idea because profit will increase by $24,000 b. reject the idea because profit will decrease by $29,750 c. accept the idea because profit will increase by $3,750 d. accept the idea because profit will increase by $74,000
a An increase in selling price of $5 will increase the contribution margin $5. The increased CM of $74,000 ((10,750*$32)-(10,000* $27)) - the additional fixed costs of $50,000 = a profit increase of $24,000
If a company with excess capacity has an opportunity to take an order in addition to its regular sales, the sales price per unit must cover which of the following costs? a. variable manufacturing cost per unit b. fixed costs per unit for units included in the order c. any cost incurred by accepting the order d. total fixed costs
a & c
The single point where the total revenue line crosses the total expense line on the CVP graph indicates: a. profit equals zero b. profit is less than zero c. the break-even point d. profit is greater than zero
a & c
Candle Central has $1,440 of total variable expenses for a sales level of 600 units $2,160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units: a. the variable cost per unit is $2.40 b. sales are $3,600 c. total fixed cost is $1,440 d. total variable costs is $1,200
a & d
Terry's Trees has reached its break-even point and has calculated its contribution margin ratio to be 70%. For each $1 increase in sales: a. net operating income will increase by $0.70 b. net operating income will increase by $0.30 c. total contribution margin will increase by $0.30 d. total contribution margin will increase by $0.70
a & d
When making a decision using incremental analysis consider the: a. change in sales dollars resulting specifically from the decision b. old income statement in comparison to the new income statement c. volume that would occur regardless of the decision d. change in cost resulting specifically from the decision
a & d
In a process cost system:
a Work in Process account is maintained for each process.
Standard
a benchmark for measuring performance
relevant benefit
a benefit that differs between alternatives
relevant benefit
a benefit that differs between alternatives in a decision. Differential revenue is a relevant benefit
The difference between a budget and a standard is that:
a budget expresses a total amount, while a standard expresses a unit amount.
Self-imposed or Participative budget
a budget that is prepared with the full cooperation and participation of managers at all levels
a business segment should only be dropped if
a company can save more in fixed costs that it loses in contribution margin
avoidable cost
a cost that can be eliminated by choosing one alternative over another in a decision. This term is synonymous with differential cost and relevant cost.
avoidable cost definition
a cost that can be eliminated in whole or in part by choosing one alternative over another
avoidable cost
a cost that can be eliminated, in whole or in part, by choosing one alternative over another; are relevant costs
Sunk Cost
a cost that has already been incurred and cannot be avoided. EX. You bought a truck, the amount paid for the truck is a sunk cost
Absorption Costing
a costing method that includes all manufacturing costs- direct materials, direct labor and both variable and fixed manufacturing overhead- in unit product costs
make or buy decision
a decision concerning whether an item should be produced internally or purchased from an outside supplier
make or buy decision
a decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier
Cash Budget
a detailed plan showing how cash resources will be acquired and used
Direct Materials Budget
a detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories
Production Budget
a detailed schedule showing the expected sales for the budget period
Sales budget
a detailed schedule showing the expected sales for the budget period expressed in both dollars and units
differential cost
a difference in cost between two alternatives.
relevant cost
a different in cost between any two alternatives. Synonyms are avoidable cost, differential cost, and incremental cost
Which of the following statements are true?
a direct cost can be easily and conveniently traced to a specific cost object & a regional sales manager's salary would be a direct cost of the regional office in which the sales manager works.
A cost driver is:
a factor that causes overhead costs to occur.
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
Net Present value profile
a graphical representation of the relationship between an investment's NPVs and various discount rates
constraint
a limitation under which a company must operate, such as limited available machine time or raw materials, that restricts the company's ability to satisfy demand.
bottleneck
a machine or some other part of a process that limits the total output of the entire system
Responsibility Accounting
a manager should be held responsible for the items and only the items he has control over
special order
a one time order that is not considered part of the companys normal ongoing business - only incremental costs and benefits are relevant
special order
a one-time order that is not considered part of the company's normal ongoing business
special order
a one-time order that is not considered part of the company's normal ongoing business.
A standard cost is:
a predetermined cost.
Non-conventional cash flows occur when...
a project has an outlay (negative cash flow) at the end (or in some intermediate period in the life of a project) as well as the beginning
Average accounting return rule
a project is acceptable if its average accounting return exceeds a target average accounting return
Flexible Budget
a report showing estimates of what revenues and costs should have been, given the ACTUAL level of activity for the period
Flexible Budget
a report showing estimates of what revenues and costs should have been, given the actual level of activity for the period
recognizing individuals at all levels of the organization as team members whose views and judgments are valued by top management is an advantage of:
a self-imposed budget
value chain
a value chain includes activities ranging from development to production to after-sales service
Which characteristics are essential for successful implementation of ABC? (Check all that apply.) a) A cross-functional team should be created. b) Top managers must design and implement ABC. c) ABC data should be linked to how people are rewarded. d) Top managers must support ABC
a) A cross-functional team should be created. c) ABC data should be linked to how people are rewarded. d) Top managers must support ABC
In activity-based costing, what is calculated by dividing the total cost of each activity by its total activity? a) Activity rates b) Transaction driver c) Allocation base d) Cost pool
a) Activity rates
Which costing method does not assign organization-sustaining costs to products? a) Activity-based b) Both activity-based and traditional c) Traditional d) Neither activity-based nor traditional
a) Activity-based
Which of the following might be included in a customer relations cost pool? (Check all that apply.) a) Customer entertainment b) Customer orders c) Machine set-ups d) Cost of sales calls
a) Customer entertainment d) Cost of sales calls
In the ease of adjustment coding scheme, which of the following are usually considered Green costs? (Check all that apply.) a) Direct materials b) Direct labor c) Shipping d) Selling expense
a) Direct materials c) Shipping
Activity-based management is focused on which of the following activities? (Check all that apply.) a) Eliminating waste b) Increasing processing time c) Reducing defects d) Pricing decisions
a) Eliminating waste c) Reducing defects
Which of the following items are the same under both ABC and traditional costing> (Check all that apply.) a) Net income b) Total sales c) Total costs d) Product margins
a) Net income b) Total sales c) Total costs
For what reasons is an ABC system more costly to maintain than traditional costing systems? (Check all that apply.) a) Numerous activity measures must be entered into system. b) Numerous activity measures must be collected and checked. c) Large amounts of payroll data must be entered. d) Costs for materials and labor must be entered.
a) Numerous activity measures must be entered into system. b) Numerous activity measures must be collected and checked.
Which of the following are organization-sustaining activities? (Check all that apply.) a) Setting up a computer network b) Arranging for shipping products to a customer c) Heating a factory d) Preparing annual reports
a) Setting up a computer network c) Heating a factory d) Preparing annual reports
Select which activities could be combined into one batch-level activity. (Check all that apply.) a) The number of customer orders b) The number of customers entertained c) The power to run machines d) The products designed e) The number of shipped orders
a) The number of customer orders e) The number of shipped orders
In activity based costing another term for activity measure is: a) cost driver b) cost pool c) volume d) overhead
a) cost driver
A cost pool including costs to entertain customers and make sales calls would be considered a _____ activity. a) customer-level b) unit-level c) product-level d) batch-level
a) customer-level
Activity-based costing is not used for external reporting because: (Check all that apply.) a) external reports are less detailed than internal reports. b) it would not disclose enough information about products. c) ABC does not comply with GAAP. d) it is difficult to make changes in the existing accounting system.
a) external reports are less detailed than internal reports. c) ABC does not comply with GAAP. d) it is difficult to make changes in the existing accounting system.
The action analysis report: (Check all that apply.) a) provides better information for decision making than a traditional cost system. b) shows how difficult it would be to adjust costs given changes in activities. c) results in a different bottom line margin than a traditional ABC product margin d) identifies costs that have been assigned to a product.
a) provides better information for decision making than a traditional cost system. b) shows how difficult it would be to adjust costs given changes in activities. d) identifies costs that have been assigned to a product.
To reconcile ABC product margin to net income: a) subtract overhead costs not assigned to products b) add overhead costs not assigned to products c) do nothing; product margin is equal to net income/loss
a) subtract overhead costs not assigned to products
In ABC, the greater the number of activities (Check all that apply): a) the more accurate the costs are likely to be b) the more costly the system will be to design c) the easier the system will be to implement and maintain
a) the more accurate the costs are likely to be b) the more costly the system will be to design
CVP analysis allows companies to easily identify the change in profit due to changes in: a. selling price b. costs c. volume d. location e. management
a, b, c
The break-even point can be affected by: a. total fixed costs b. net operating income c. contribution margin per unit d. sales mix
a, c, d
The project generates cash inflows that are identical each year
calculate the factor of he internal rate of return, then use the factor to find the internal rate of return using the present value of annuity table
A performance report:
can be used to help evaluate and reward employees & helps identify and eliminate sources of unsatisfactory performance.
Joint costs:
cannot be avoided once a process is started are irrelevant in decisions regarding what to do with a product after split-off
A measure of the limit placed on a specific resource is known as its _____
capacity
_____ is a measure of the limit placed on a specific resource
capacity
_____ is the measure of the limited capability of a resource
capacity
How managers plan significant investments in projects with long-term implications is called____________________
capital budgeting
Collections on credit sales made to customers in prior periods plus collections on sales made in the current budget period equals expected ____ collections:
cash
The _____ budget receives considerable attention because a company cannot exist without sufficient cash
cash
The components of the _____ budget include budgeted cash receipts, budgeted cash payments, and financing
cash
expected __ collections consist of collections on credit sales made to customers n prior periods polls collections on sales made in the current budget period.
cash
The receipts, disbursements, excess or deficiency, and financing section are all parts of the...
cash budget
_____ _____ is the financial budget that provides info about budgeted cash receipts and payments
cash budget
the receipts, disbursements, and excess or deficiency, and financing section are all parts of the:
cash budget
What consists of collections on credit sales made to customers in prior periods plus collections on sales made in the current budget period?
cash collections
what consists of collections on credit sales made to customers in prior periods plus collections on sales made in the current budget period?
cash collections
Which of the following is not found in the financing section of the cash budget:
cash deficiency
which of the following is NOT found in the financing section of the cash budget?
cash deficiency
which of the following is not found in the financing section of the cash budget
cash deficiency
The max number of IRRs is equal to the number of times that the .......... change sign from positive to negative and/or negative to positive
cash flows
ABC systems assign nonmanufacturing overhead on a(n) __-and-__ basis.
cause effect
Using the contribution margin ratio, the impact on net income for a change in sales dollar is:
change in sales dollars x contribution margin ratio.
make or buy this component part? decision rule:
choose the alternative that has the greatest net incremental revenues over incremental costs
Advantages of the IRR Rule
closely related to NPV, generally leading to identical decisions, easy to understand and communicate
Advantages of the Profitability Index Rule
closely related to NPV, generally leading to identical decisions, easy to understand and communicate, may be useful when available investment funds are limited
Underpaid or overspilled manufacturing overhead can be disposed of by:
closing it out to Cost of Goods sold or allocation it among WIP, finished good, and COGS.
Costs that are shared by multiple cost objects in a company are known as ______ costs.
common
One mistake companies make when preparing segmented income statements is arbitrarily assigning ______ fixed costs to segments.
common
When performing a keep or drop analysis, _____ fixed costs should be excluded from the analysis
common
When performing a keep or drop decision analysis, _____ fixed costs should be excluded from the analysis
common
The decision to eliminate one product or service is unlikely to eliminate the _____ _____ costs that are shared by other product or service lines
common fixed
When a product line is eliminated, the _____ _____ costs allocated to that product will be redistributed to the remaining product lines
common fixed
_____ _____ _____ are costs shared by multiple segments that may be incurred even if a section is eliminated
common fixed costs
Budgets
communicate management's plan throughout the organization
Budgets:
communicate management's plan throughout the organization
In most cases, prices are set by the:
competitive market.
A strategy helps a company distinguish itself from:
competitors
Discontinuing a _____ product can have a negative effect on related products
complementary
_____ _____ are products that are used together such as a printer and ink cartridge
complementary products
Direct Labor
consists of labor costs that can be easily (i.e., physically and conveniently) traced to individual units of product.
A(n) _____ resource requires a manager prioritize how products are produced
constrained
a(n) __ resource requires a manager to decide which products or services should be cut back.
constrained
_____ _____ are resources that are unable to meet the demand placed on them
constrained resource
What is a limited resource of some type that restricts the company's ability to satisfy demand?
constraint
When a shortage or limited resources of some type restricts a company's ability to satisfy demand, the company has a(n)________
constraint
Which of the following is a limited resource of some type that restricts the company's ability to satisfy demand?
constraint
when a limited resource of some type restrict a company's ability to satisfy demand, the company has a(n) __.
constraint
when a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) __.
constraint
when a limited resource of some types restricts a company's ability to satisfy demand, the company has a(n) __.
constraint
which of the following is a limited resource of some type that restricts the company's ability to satisfy demand?
constraint
Mixed Cost
contains both variable and fixed cost elements.
sell or process further decisions
continue processing a joint product after the split off point so long as the incremental revenue from such processing exceeds the incremental processing cost incurred after the split off point
A 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed is called a(n) ___ or perpetual budget.
continuous
_____ budgeting gives managers a constant period of budgets available and keeps them in a continuous planning mode instead of only once per period
continuous
Which of the following types of budgets keep managers focused one year ahead, so they do not become too narrowly focused on short-term results?
continuous & perpetual
a 12 month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed
continuous or perpetual budget
After reaching the break-even point, a company's net operating income will increase by the _______ ________ per unit for each additional unit sold
contribution margin
The reason we focus on _____ _____ is that fixed costs will not change in the short run
contribution margin
To calculate profit, multiply the _______ per unit by sales volume and subtract total fixed cost
contribution margin
To calculate the degree of operating leverage, divide ______ ________ by net operating income.
contribution margin
To calculate the degree of operating leverage, divide _________ _________ by net operating income
contribution margin
To estimate the effect on profits for a planned increase in sales, multiply the increase in units sold by the unit _______ _______
contribution margin
When determining which product or service makes the best use of a constrained resource, a company has to determine which products or customers will maximize:
contribution margin
a business segment should only be dropped if a company can avoid more in fixed costs than it gives up in:
contribution margin
when determining which product or service makes the best use of a constrained resource, a company has to determine which course of action will maximize the company's total:
contribution margin
when determining which product or service makes the best use of a constrained resource, a company has to determine which products or customers will maximize:
contribution margin
when making a product line decision, a company may focus on lost __ __ and avoidable fixed costs or prepare comparative income statements.
contribution margin
when making a product line decision, a company may focus on lost _______ ______ and avoidable fixed costs or prepare comparative income statements
contribution margin
The contribution margin ratio is:
contribution margin divided by sales.
if some products must be cut back because of a constraint, produce the products with the highest:
contribution margin per unit of constrained resource
Contribution margin divided by sales is the formula for....
contribution margin ratio
Contribution margin divided by sales is the formal for:
contribution margin ratio.
Sales revenue minus variable expenses equals _______ _______.
contribution margin.
Comparing actual results to budgeted pans is an example of management performing its _____ function
control
Gathering feedback to ensure that the plan is being followed is referred to as ___.
control
Gathering feedback to ensure that the plan is being followed is referred to as ____:
control
Gathering feedback to ensure that the plan is being followed is referred to as _________
control
gathering feedback to ensure that the plan is being followed is referred to as __.
control
the purpose of a budget should be to:
coordinate efforts, establish goals, motivate people
an activity __ pool relates to a single activity measure in the ABC system.
cost
Another name for an activity measure or allocation base in ABC is _________ _______.
cost driver
the term __ __ is also used when referring to an allocation base or activity measure in activity-based costing.
cost driver
An activity that has a direct cause-effect relationship with the resources consumed is a(n):
cost driver.
The discount rate is referred to by all of the following alternative names except the:
cost of capital.
Gross margin is calculated by subtracting ______ from ______.
cost of goods sold; sales.
the ending finished goods inventory budget computes the:
cost of unsold units
sunk cost
cost that has already been incurred and cannot be avoided regardless of what a manager decides to do
CVP is the acronum for _______-_____-_______
cost-volume-profit
joint cost
costs that are incurred up to the split-off point in a process that produces joint products.
joint costs
costs that are incurred up to the split-off point.
joint cost
costs that are shared in the manufacturing and marketing of several products in a product line
relevant cost
costs that differ between alternatives
relevant cost defintiion
costs that differ between alternatives
working capital
current assets minus current liab
Working capital
current assets minus current liabilities
Activities that could be combined into one batch-level activity are the number of:
customer orders and shipped orders.
match the activity pool with an appropriate activity measure.
customer orders-number of customer orders product design-number of product designs order size-machine hours customer relations-number of customers
The most common management reports using ABC data are:
customer profitability and product profitability.
A value chain adds value by focusing on the major functions of a business including:
customer service, manufacturing, and R&D.
a cost pool including costs to entrain customers and make sales calls would be considered a __ activity.
customer-level
Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000 and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will: a. increase by $6,000 b. increase by $10,000 c. decrease by $8,000 d. decrease by $2,000
d
Net operating income can be calculated as: a. (dollar sales - dollar sales to break even) x unit contribution margin b. dollar sales - dollar sales to break even c. unit sales x unit contribution margin d. (unit sales - unit sales to break even) x unit contribution margin
d
The contribution margin statement is primarily used for: a. both internal and external reporting b. tax purposes c. external financial statement reporting d. internal decision making
d
Using the contribution margin ratio, the impact on net income for a change in sales dollars is: a. change in sales dollars per unit - contribution margin ratio b. change in total contribution margin x contribution margin ratio c. variable expense per unit - contribution margin ratio d. change in sales dollars x contribution margin ratio
d
What type of team is needed to design and implement ABC? a) Self-leadership b) Executive c) Management d) Cross-functional
d) Cross-functional
Individual product costs are listed on which report? a) Both internal and external b) External c) Neither internal nor external d) Internal
d) Internal
Redeploying resources is only beneficial if the resources are shifted to the: a) most expensive work center b) work center with idle capacity c) least expensive work center d) work center at full capacity
d) work center at full capacity
Selecting a course of action from available alternatives is part of the ______ process.
decision making
Decentralized Organization
decision making authority is spread throughout the organization rather than being confined to a few top executives
When a product line is eliminated, total variable cost should _____ in direct proportion to the reduction in production and sales of that product line
decrease
Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. The company currently sells 1,200 pillows per month and expects that the improved materials would increase sales to 1,500 per month. The impact of this change on total contribution margin would be a _________(increase or decrease) of $________
decrease; $3,000
Return on Investment (ROI)
defined as net operating income divided by avg operating assets
Standard quantity per unit
defines the amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies, such as scrap and spoilage
the most common significant noncash manufacturing overhead cost in most companies is ______
depreciation
In cost-plus pricing, the markup consists of:
desired ROI.
to obtain the total number of units to be produced add______ to budgeted unit sales
desired ending inventory
what is added to the budgeted unit sales on a production budget to obtain the total number of units to be produced?
desired ending inventory
Labor Rate Variance
difference between the actual hourly rate and the standard hourly rate, multiplied by the actual number of hours worked during the period.
Labor Efficiency Variance
difference between the actual hours used and the standard hours allowed for the actual output, multiplied by the standard hourly rate.
Variable Overhead Efficiency Variance
difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate.
Activity Variance
difference between the actual level of activity used in the FLEXIBLE budget and the level of activity assumed in the PLANNING budget
Variable Overhead Variance
difference between the actual variable overhead cost incurred during the period and the standard cost that should have been incurred based on the actual activity of the period.
Net present value can be defined as the:
difference between the present value of a project's cash inflows and the present value of the project's cash outflows
Differential Cost
difference in cost between two alternatives
A change in revenues between two alternatives is known as _______ revenue or incremental revenue.
differential
Which are avoidable costs?
differential and incremental.
_____ _____ is the costs that differ between decision alternatives
differential costs
______ ______ are costs that change across decision alternatives
differential costs
A _____ fixed cost is one that can be traced to a specific business segment
direct
Only the _____ _____ costs traceable to a product are avoidable
direct fixed
_____ _____ _____ is a fixed cost that can be attributed to specific business segment
direct fixed cost
Labor costs that can be easily and conveniently traced to a specific product are _____ costs.
direct labor
The direct labor hours required to satisfy the production budget is shown on the ___ ___ budget.
direct labor
The work of factory employees that can be physically and directly associated with converting raw materials into finished goods is:
direct labor
Working hours required to satisfy the production budget are shown on the ____ budget:
direct labor
the number of working hours required to satisfy the production budget is shown on the ________ __________ budget
direct labor
_____ ____ _____ is a budget indicating the amount of direct labor needed to meet expected production
direct labor budget
which of the following statements is true regarding overhead allocation in the 19th and 20th centuries?
direct labor hours was a satisfactory overhead allocation base.
A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost.
direct material
In a manufacturing company, the ___ ___ budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.
direct materials
In a manufacturing company, the _____ _____ budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories:
direct materials
in a a manufacturing company, the __ __ budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.
direct materials
In a manufacturing company, which budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories?
direct materials budget
Which of the following budgets are needed to calculate unit product costs?
direct materials budget, direct labor budget, & manufacturing overhead budget
Manufacturing costs include:
direct materials, direct labor, and manufacturing overhead.
which of the following budgets are needed to calculate unit product costs?
direct materials, direct labor, manufacturing overhead budget
Payments for direct materials, direct labor, and manufacturing overhead costs are all listed in the ____ section of the cash budget:
disbursements
The section on the cash budget that summarizes all cash payments that are planned for the budget period is the cash ____ section:
disbursements
the cash __ section of the budget summarizes all cash payments that are planned for the budget period.
disbursements
The 3 sections of the cash budget are _____, _____, and financing
disbursements, receipts
calc.ing the present value of money is referred to as ___________ cash flows
discounting
In order to convert the margin of safety from dollar form to percentage form, the margin of safety in dollars must be ________ by the budgeted (or actual) sales in dollars
divided
irrelevant costs?
do not differ between alternatives and are therefore UNAVOIDABLE
if fixed costs are less than the contribution margin then
dont drop
Drop this segment or retain it? decision rule:
drop a segment if its avoidable fixed costs exceed its contribution margin; or if its segment margin is negattive
Activity Variance
due solely to the difference between the actual level of activity used in the flexible budget and the level of activity assumed in the planning budget
bc of the time value money, projects the promise _______________ returns are preferable to those that promise the opposite
earlier
Advantages of AAR
east to calculate, needed information is usually available
Advantages of the Payback period rule
easy to understand, adjusts for uncertainty of later cash flows, biased towards liquidity
which of the following is an advantage of buying a part instead of making it?
economies of scale can result in higher quality and lower costs from suppliers.
Activity-based management focused on:
eliminating waste and reducing defects.
how much of a constrianed resource to be used for each product? decision rule:
emphasize the products with the greatest contribution margin per unit of constrained resource
Companies have a corporate social responsibility to serve:
employees, suppliers, customers, and communities.
The _____ balance of cash appears on the budgeted balance sheet
ending
The cost of unsold units is computed on the ____ budget:
ending finished goods inventory
The cost of unsold units is computed on the ______ budget
ending finished goods inventory
The cost of unsold units is computed on the...
ending finished goods inventory budget
the of unsold units is computed on the:
ending finished goods inventory budget.
To calculate raw materials to be purchased on the direct materials budget, add the desired ___ inventory of raw materials to the raw materials needed based on the ___ budget and ___ the beginning inventory of raw materials to arrive at raw materials to be purchased.
ending, production, & deduct
To calculate raw materials to be purchased on the direct materials budget, add the desired _____ inventory of raw materials to the raw materials needed based on the _____ budget and _____ the beginning inventory of raw materials to arrive at raw materials to be purchased:
ending, production, deduct
Companies should provide _________ and human rights advocates with greenhouse gas emissions data, child labor transparency, and recycling and resource conservation data.
environmental
The break-even point indicates the sales volume needed to make contribution margin _______ to fixed expenses
equal
when making a preference decision, the net present value of one project cant be directly compared to the net present value of another project unless the initial investments are _____
equal
Once the break-even point has been reached, the sale of an additional unit will lead to an increase in contribution margin that is _______ the increase in net operating income
equal to
Type of costs that might be included in a cost pool based on order size include:
equipment depreciation and factory supplies.
The purpose of a budget should be to:
establish goals, motivate people, & coordinate efforts
The formal for a predetermined overhead rate is:
estimated manufacturing overhead cost divided by estimated allocation base.
Without ______ behavior, the economy would operate much less efficiently. Less would be available to consumers, and quality would be lower
ethical
_______ ______ ______ _____ ______ _____ ______ is step 3 of the management decision making process
evaluate the costs and benefits of alternatives
what pieces of information are provided in product and customer profitability reports?
everything but unsatisfied customers
an activity cost pool accumulates for:
exactly one activity measure.
If a company has _____ capacity, increasing production will only increase the costs that vary with production
excess
When a company has more than enough resources to satisfy demand it's operating with ____ capacity
excess
Exists when a company has not yet reached the limit on its resources is ______ _____
excess capacity
If a company has enough _____ _____ of fill a special order without affecting "normal" sales, then there are no incremental fixed costs or opportunity costs to consider. Only the variable costs of the order must be covered by the sales price
excess capacity
When a company has not yet reached the limit on its resources, it has _____ _____
excess capacity
_____ _____ is the difference between a company's current level of production and what it could produce given its current operating structure and cost
excess capacity
_____ _____ occurs when a company has more than enough resources to satisfy demand
excess capacity
_____ capacity exists when a company has not yet reached the limit on its resources, while _____ capacity indicates that the limit on one or more resources has been reached
excess, full
A product profitability report:
excludes costs not caused by specific products.
When a supplier pools demand from a number of companies, it may enjoy economies of scale, which can result in higher quality and lower costs than a company could obtain if it made the parts on its own. This is an advantage of using __________ suppliers instead of vertical integration.
external
CVP analysis focuses on how profits are affected by: a. mix of products sold b. unit variable cost c. total fixed costs d. break-even point e. sales volume f. selling price
f, e, b, c, a
Depreciation charges that result from making an investment should be ignored when determining the annual incremental net operating income for the simple rate of return calculation.<br><br>
false
T/F when a capital investment decision is being made between two or more alternatives, the project with the shortest payback period is always the more desirable investment
false
True or False: for most companies a single, annual cash budget is sufficient.
false
the basic premise of the payback method is the _______________________, the more desirable the investment
faster the cost of the investment is recovered
A benefit of the lean thinking model is:
fewer defects.
The budgeted balance sheet is prepared using info from the _____ budgets
financial
_____ _____ are budgets that focus on the financial resources needed to support operations
financial budgets
The cash budget includes four major sections: receipts, disbursements, the cash excess or deficiency, and ___.
financing
In activity-based costing, __ allocation is the process of assigning overhead costs to activity cost pools.
first-stage
If dropping a product line enables a company to avoid more in __________ costs than it loses in contribution margin, then its overall net operating income would improve by eliminating the product line.
fixed
One of the great dangers in allocating common __________ costs is that such allocations can make a product line look less profitable than it really is.
fixed
a business segment should only be dropped if a company can save more in ______ costs than it loses in contribution margin
fixed
if dropping a product line enables a company to avoid more in _______ costs than it loses in contribution margin, then its overall net operating income would improve by eliminating the product line.
fixed
one of the great dangers in allocating common ___ costs is that such allocations can make a product line look less profitable than it really is
fixed
one of the great dangers in allocating common ________ costs is that such allocations can make a product line look less profitable than it really is.
fixed
one of the greatest dangers in allocating common __ costs is that such allocations can make a product line look less profitable than it really is.
fixed
______ _____ costs can be ignored when making special order decisions because these costs will remain the same regardless of whether the order is accepted or not, so long as the company has the capacity to the order
fixed overhead
A static budget is appropriate for:
fixed overhead costs.
what is added to the variable selling and administrative expenses to get the total selling and administrative expenses?
fixed selling and administrative expenses.
the desired ending raw materials inventory for the year is the same as the desired ending inventory for the __ quarter
fourth
the desired ending raw materials inventory for the year is the same as the desired ending inventory for the ___________ quarter.
fourth
At _____ capacity, opportunity costs become relevant and should be incorporated into the analysis
full
If a company is at _____ capacity, production cannot be increased without incurring additional fixed costs
full
When a company's operating at _____ capacity, it means the limit on one or more resources has been reached, and making the choice to do one thing means giving up the opportunity to do something else
full
_____ costs are relevant when firms are at full capacity because choosing to do one thing forces managers to give up something else
full
At _____ _____ opportunity costs become relevant and should be incorporated into the analysis
full capacity
Opportunity costs become relevant when a company is operating at _____ _____
full capacity
_____ _____ occurs when a company is operating its resources to the limit of its capacity. No additional units can be produced or customers served without increasing capacity or incurring opportunity costs
full capacity
_____ ______ exists when a company has met its limit on one or more resources
full capacity
In terms of social responsibility, companies should provide customers with:
full disclosure of product-related risks.
salvage value
funds gained form the sale of a capital asset
Salvage
funds gained from the sale of a capital asset
Initial investment
funds needed to purchase a capital asset or begin a capital investment project
initial investments
funds needed to purchase a capital asset or begin a capital investment project
For a cost to be relevant it must be a _____ cost that differs between decision alternatives
future
An investment of $10,000 today is estimated to return $11,500 a year from now. The $11,500 is called the ________ of the investment.
future value
Materials requisitions are:
generally used less frequently in process costing than job order costing.
An absorption costing income statement calculates:
gross margin by deducting cost of goods sold from sales.
Profit Center
has control over both costs and revenue, but not over the use of investment funds
Investment Center
has control over cost, revenue, and investments in operating assets
Cost Center
has control over costs, but not over revenue or the use of investment funds
When using a traditional cost system, standard, __-volume products are generally overcosted and custom, __-volume products are often undercosted
high low
When using a traditional cost system, standard, _____-volume products are generally overcosted and custom, ______-volume products are often undercosted.
high, low
When the internal rate of return method is used to rank investment proposals, the ________ the internal rate of return, the more desirable the investment.
higher
When using the project profitability index to rank competing investments, the _______ the project profitability index, the more desirable the project.
higher
Key differences between variable and absorption costing include:
how costs classifications are defined, how fixed overhead is treated, and whether or not contribution margin is reported.
The first step in activity-based costing is to:
identify and classify the major activities involved in the manufacture of specific products.
1st step of the management decision making process is ______ ______ ______ _____
identifying the decision problem
accept a special order? decision rule:
if its incremental revenue exceeds the incremental expense of producing it
continue to process joint products after the split off point? decision rule:
if the incremental revenue after further processing exceeds the incremental costs of more processing
when to retain an unprofitable line
if the product line acts as a magnet to attract customers if the product line helps sell other products or if it acts as a magnet to attract the customer
Disadvantages of the Payback period rule
ignores the time value of money, requires an arbitrary cutoff point, ignores cash flows beyond the cutoff point, biased against long-term projects, such as research and development, and new projects, ignores any risks associated with projects
A disadvantage of the cash payback technique is that it:
ignores the time value of money.
Activity-based costing can identify activities that would benefit from process _______. (Enter only one word per blank.)
improvements
Product Cost
include all costs involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead.
Operating Assets
include cash, AR, Inventory, plant and equipment, and all other assets held for operating purposes
When using net present value to compare projects, the total cost approach:
includes all cash inflows and outflows under each alternative; is the most flexible method available to compare projects.
Manufacturing Overhead
includes all manufacturing costs except direct materials and direct labor.
Advantages of a discounted payback period rule
includes time value of money, east to understand, does not accept negative estimated NPV investments, biased towards liquidity
Net Operating Income
income before taxes and interest and is sometimes referred to as EBIT
A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown in the budgeted ____ ____:
income statement
A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budgeted ___ ___.
income statement
The budgeted _____ _____ shows a company's planned profit
income statement
a company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budget __________ ____________
income statement
the budgeted __ __ shows a company's planned net profit and serves as a benchmark which subsequent company performance can be measured.
income statement
Decide whether the statement about management's decision making process is correct or incorrect 1. The final step in management's decision making process is to actually make the decision 2. In making business decisions, management will ordinarily only concern financial info because it's objectively determined 3. The 1st step in management's decision making process is to determine the decision alternatives 4. Relevant costing is used for short term decision making because it focuses only on the cost and benefits that are relevant to the decision at hand 5. Under incremental analysis, variable costs will change under different courses of action, but fixed costs will never change 6. Decisions involve a choice among alternative courses of action 7. When using differential analysis, some costs will change under alternative courses of action, but revenues will not change
incorrect= 1, 2, 3, 5, 7 correct= 4, 6
in recent years, direct labor as a percentage of total cost began declining, which caused overhead to
increase
Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead cost will ______ ______ ______ as the number of units produced increases
increase in total
what is the best way to increase profits when there is a constrained resource?
increase the capacity of the bottleneck
which of the following is the best way to increase profits when there is a constrained resource?
increase the capacity of the bottleneck
Comparing the relevant costs and benefits of alternative decision choices is called _____ _____
incremental analysis
_____ _____ is the decision making approach that focuses on the differential costs and benefits of alternative decision choices
incremental analysis
When analyzing a special order, only the_blank_ are relevant.
incremental costs and benefits
A joint product should be processed after split off if the
incremental revenue after split off exceeds the incremental processing cost after split off
a joint product should be processed after split-off if the:
incremental revenue after split-off exceeds the incremental processing cost after split-off.
examples of relevant costs
incremental, differential, marginal
Salvage value
inflow
match each capital investment cash flow with the appropriate category salvage value initial investment working capital
inflow outflow inflow+outflow
working capital
inflow and outflow
Make or buy decisions are also referred to as _____ vs. _____ decisions
insourcing, outsourcing
if inventory levels are____ . the result can lead to lost sales or last minute, high- cost production efforts
insufficient
when a product is past the split-off point, but is not yet a finished product, it is called a(n) __ product.
intermediate
as it applies to sell or process further decisions, which term refers to a product that is in the process of being made?
intermediate product
ABC is generally used for __ reporting.
internal
the ________ rate of return focuses on cash flows, while the _______ rate of return focuses on revenue and expense
internal simple
The _____ rate of return focuses on cash flow, while the _____ rate of return focuses on revenue and expense.
internal; accounting
A master budget consists of:
interrelated financial budgets and operating budgets.
Motivation that comes from within is known?
intrinsic motivation.
Ways to increase capacity of bottleneck
investing in additional machines at the bottleneck, shifting workers from the processes that isn't bottlenecks to the process that is the bottleneck
A(n) ___ requires commiting funds today with the expectation of earning a return on those funds in the future in the form of additional cash flows.
investment
The equation used to calculate the project profitability index is net present value of the project divided by _____ required
investment
in an equipment capital budgeting decision, recovering the original investment means that the:
investment has generated enough cash inflows to completely cover the cost of the equipment
When net cash inflow is the same every year, the equation used to calculate the factor from which the internal rate of return can be determined is:
investment required/annual net cash inflow
Capital budgeting decisions:
involve an immediate cash outlay in order to obtain a future return; require a great deal of analysis prior to acceptance
Planning
involves developing goals and preparing various budgets to achieve those goals
Control
involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change
Bad decisions can easily result from erroneously including __________ costs and benefits when analyzing alternatives.
irrelevant
When making decisions, managers should ignore _____ costs
irrelevant
When making decisions, managers should ignore __________ costs.
irrelevant
bad decisions can easily result from erroneously including _______ costs and benefits when analyzing alternatives
irrelevant
when choosing b/w two alternatives, such as replacing or not replacing the machine, do not include _______ costs in the analysis because these costs will be the same under each alternative.
irrelevant
when deciding to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) _________ cost
irrelevant
when deciding whether to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) __ cost.
irrelevant
when making decisions, managers should ignore __ costs.
irrelevant
Monthly utility costs are estimated to be $1,200 regardless of the course of action; in this case the utility costs are considered a/an _____ _____
irrelevant cost
Decide whether it's relevant or irrelevant 1. Decision: should you take the bus or drive your car to school for the semester? Cost: $300 repair bill to fix brakes 2. Decision: Eliminate an unprofitable segment. Cost: unavoidable fixed overhead 3. Decision: make or buy a component used in manufacturing a product. Benefit: selling price of the final product 4. Decision: accept a special order. Cost: variable overhead 5. Decision: sell unassembled and unfinished furniture or sell finished assembled furniture. Cost: the cost of producing an unfinished and unassembled table 6. Decision: XYZ Tire Company is considering dropping one of its 10 models of tires. Cost: common fixed costs 7. Decision: ABC Golf Co. produces custom golf clubs and is considering purchasing the putter from a manufacturer of custom putters. Cost: direct labor 8. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Cost: cost of flight crew 9. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Cost: in flight meals 10. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Benefit: discounted ticket price
irrelevant= 1, 2, 3, 5, 6, 8 relevant= 4, 7, 9, 10
Continuous or Perpetual Budget
is a 12 month budget that rolls forward one month as the current month is completed
Avoidable Cost
is a cost that can be eliminated by choosing one alternative over another. EX. going to a movie, or renting a DVD
Fixed Cost
is a cost that remains constant, in total, regardless of changes in the level of activity.
Operating Leverage
is a measure of how sensitive net operating income is to a given percent change in dollar sales
The flexible budget:
is a series of static budgets at different levels of activity.
Job-ordering cost:
is a widely used costing method and may be used in almost any type of organization.
opportunity cost
is not an actual cash outlay and is not recorded in the formal accounts of an organization
Planning Budget
is prepared before the period begins and is valid for only the planned level of activity
Revenue Variance
is the difference between ACTUAL total revenue and what the total revenue should have been (revenue in the FLEXIBLE budget)
Revenue Variance
is the difference between actual total revenue and what the total revenue should have been
Responsibility Center
is used for any part of an organization whose manager has control over and is accountable for cost, profit, or investments
the discount rate...
is used to det the present value factor
The discount rate:
is used to determine the present value factor
In developing a flexible budget within a relevant range of activity:
it is necessary to relate variable cost data to the activity index chosen.
Flaws of the AAR
it is not a rate of return in any meaningful economic sense, ignores time value, lack of an objective cutoff period, doesn't look at cash flow and market value
If a cost is traced to a segment using activity-based costing,
it may or may not be an avoidable cost of the segment
The two basic types of cost accounting systems are:
job order and process cost systems.
Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called __________ costs.
joint
The split-off point is the point in the manufacturing process at which the __________ products can be recognized as separate products.
joint
Two or more products that are produced from a common input are known as __________ products.
joint
costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called __ costs.
joint
the costs incurred up to the split-off point in a process in which two or more products are produced from a common input are know as __ costs.
joint
the split-off point is the point in the manufacturing process at which the __ products can be recognized as separate products.
joint
two or more products that are produced from a common input are known as __ products.
joint
which of the following statements are true
joint costs are common costs that are incurred to produce two or more products allocation of joint-costs is needed for inventory valuation improper allocation of joint costs can lead to incorrect decisions.
__ are two or more products produced from a common input.
joint products
Management decision in which lost revenue is compared to the reduction of costs to determine the overall effect on profit is _____ _____ _____ _____
keep or drop decision
_____ _____ _____ _____ application of incremental analysis that requires managers to decide whether to retain or eliminate a business segment or product
keep or drop decisions
if, by dropping a product line a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should
keep the product line
if, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should:
keep the product line
if, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should:
keep the product line.
Risks of not knowing in advance how much labor time will be needed through the budget period includes:
labor shortages, erratic layoffs, low employee morale
when a capital budgeting decisions doesnt involve any revenues, the most desirable alternatives is the one with the :
least total cost from a present value perspective
A capital investment project's payback period is the:
length of time it takes the project to recover its initial cost from the net cash inflows generated
Payback rule
length of time it takes to recover our initial investment
when considering a purchase of equipment, discounting is necessary bc future cost savings are worth __________ today then when they actually occur in the future
less
possible advantages of making a product rather than buying it
less dependence on outside suppliers, a smoother flow of parts and materials for production
if a company has more than one potential constraint, the proper combination of products can be found by use of a quantitive method known as __ __.
linear programming
Production Budget
lists the number of units that must be produced during a period in order to satisfy both sales and inventory needs
In the _____ run, constrained resources impacts management decisions by eliminated non value added activities such as rework or waiting, or by increasing the capacity of the constrained resources such as hiring more workers, buying bigger or faster machines, or leasing additional space
long
the term CAPITAL BUDGETING is used to describe how managers plan significant investments in projects that have _________ implication
long term
_____ _____ _____ is a specific goal that management wants to achieve over a long term horizon, typically 5-10 years
long term objective
A strategic plan includes _____ term goals which are typically over a 5-10 year period and also include a ____ term or intermediate steps needed to achieve the long term goals
long, short
The term capital budgeting is used to describe how managers plan significant investments in projects that have _______ implications.
long-term
A company with a high ratio of fixed costs will be more likely than a company with a high ratio of variable costs to report an operating _______ if sales suffer a severe decline
loss
when a company does not use self-imposed budgeting, top mangers initiate the budgeting process by issuing profit targets and direct_______ - level managers to prepare budgets that meet those targets
low
When a company does not use self-imposed budgeting. Top managers initiate the budgeting process by issuing profit targets and direct ______-level managers to prepare budgets that meet those targets.
lower
a decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is a called a(n) __ or __ decision.
make buy
allocated common fixed costs can
make a product line appear to be unprofitable
A __________ decision is a decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier.
make or buy
a __ decision is a decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier.
make or buy
determining whether to carry out an activity in the value chain internally or use a supplier is a ________ decision
make or buy
Management decision in which relevant costs of making a product internally are compared to the cost of purchasing that product is a _____ _____ _____ ______
make or buy decision
a __ involves determining whether to carry out an activity in the value chain internally or use a supplier.
make or buy decision
a decision to carry out one of of the activities in the value chain internally rather than buy externally from a supplier
make or buy decision
A decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is called a
make or buy decision.
_____ _____ _____ _____ application of incremental analysis that requires managers to decide whether to perform a particular activity or function in house or to purchase it from an outside supplier
make or buy decisions
using budget assumptions when preparing the master budget:
makes it easier to answer "what-if" questions
Materials requisition forms are used for
making journal entries in accounting records and controlling the flow of materials into production.
relaxing or elevating the constraint
manager to increase the capacity of the bottleneck
The Statement of Ethical Professional Practice describes the ethical responsibilities of _______ accountants.
managerial
All costs of production other than direct materials and direct labor are shown on the _____ _____ budget:
manufacturing overhead
The _____ _____ budget shows all costs of production other than direct materials and direct labor
manufacturing overhead
Which budget shows all costs of production other than direct materials and direct labor?
manufacturing overhead budget
_____ _____ _____ budget that estimates the manufacturing overhead costs needed to support budgeted production
manufacturing overhead budget
which budget shows all costs of production other than direct materials and direct labor?
manufacturing overhead budget.
Manufacturing costs include:
manufacturing overhead, direct labor, and direct materials.
Indirect materials and indirect labor are classified as:
manufacturing overhead.
Customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer ______.
margin
customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer __.
margin
The amount by which sales can drop before losses are incurred is the _______ of ________
margin of safety
The revenue obtained from selling one additional unit of product is called ______ revenue.
marginal
A _____ budget is a comprehensive set of budgets that covers all phases of an organization's planned activities for a specific period
master
An essential management tool that communicates management's plans throughout the organization, allocates resources, and coordinates activities is called the _____ budget:
master
Each component of a(n) _____ budget is based on or provides input for another component
master
The _____ budget is a comprehensive set of budgets that covers all phases of planned activities for a specific period
master
a(n) __ budget is an essential management toll that communicates management's plans throughout the organization, allocates resources, and coordinates activities.
master
the __ budget consists of a number of separate, but interdependent, budgets that formally lay out the company's sales, production, and financial goals.
master
The _____ _____ is a set of interrelated budgets that constitutes a plan of action for a specific period
master budget
Which budget consists of a number of separate but interdependent budgets that formally lay out a company's sales, production, and financial goals?
master budget
_____ _____ comprehensive set of budgets that covers all phases of an organization's planned activities for a specific period
master budget
The best way to handle a constrained resource is to
maximize the capacity of the bottleneck
When analyzing an investment project, uncertain future cash flows:
may be estimated using computer simulations; may include intangible benefits that are difficult to quantify
Highly achievable budget targets:
may generate greater management commitment to the budget, may help build manager confidence, are are used in most companies
costs that are relevant in one decision situation:
may not be relevant in another
Costs that are relevant in one decision situation:
may not be relevant in another.
costs that are relevant in one decision situation:
may not be relevant in another.
Disadvantages of a discounted payback period rule
may reject positive NPV investments, requires an arbitrary cutoff point, ignores cash flows beyond the cutoff date, biased against long-term projects, such as research and development, and new projects, ignores risk differences between projects
Disadvantages of the IRR Rule
may result in multiple answers or no answer with non-conventional cash flows, may lead to incorrect decisions in comparisons of mutually exclusive investments
A company with adequate cash balances at the beginning and end of the year:
may still have cash deficiency issues during the year
A major purpose of cost accounting is to:
measure, record, and report product costs.
What does Acid Test ratio assess?
measures how well a company can meet its obligations without having to liquidate or depend too heavily on its inventory
Materials quantity Variance
measures the difference between the actual quantity of materials used in production and the standard quantity of materials allowed for the actual output, multiplied by the standard price per unit of materials
a(n) __ __ budget shows the amount of goods for resale to be purchases from suppliers during the period.
merchandise purchases
the amount of goods for resale to be purchased from suppliers during the period is shown on the __________ ___ budget
merchandise purchases
The required rate of return is the ________ rate of return a project must yield to be acceptable.
minimum
using a budget to blame or pressure employees to do a better job leads to:
mistrust
Which of the following statements are true?
mixed costs contain both fixed and variable cost elements and the equation for a straight-line can be used to express the relationship between mixed costs and the level of activity.
A dollar today is work _______ than a dollar earned a year from now.
more
Activity-based absorption costing uses _______ costs pools than traditional absorption costing.
more
compared to traditional systems, activity-based costing uses __ cost pools and unique measure of activity.
more
the greater the number of activities in an ABC system, the (more/less) __ costly it is for the company to develop.
more
to calculate the direct labor requirement for each quarter:
multiply the number of direct labor hours required per unit times the number of units to be produced.
To calculate the impact on net income using the contribution margin ratio, _______ the change in _______ by the contribution margin ratio
multiply; sales
Net operating income can be estimated for any sales volume above the break-even point by _________ the number of units sold above the break-even point by the unit contribution margin
multiplying
Manufacturing overhead costs are applied to a particular job (Work in process) by..?
multiplying the predetermined overhead rate by the actual quantity of the allocation base consumed by each job.
the decision to add or drop a product line should be based on the impact the decision will have on:
net operating income
The simple rate of return method focuses on _____, rather than____
net operating income, cash flows
What is subtracted from total budgeted selling and administrative expenses to determine the case disbursements for selling and administrative expenses:
non-cash expenses
What is subtracted from total budgeted selling and administrative expenses to determine the cash disbursements for selling and administrative expenses?
non-cash expenses
which of the following should not be included in the analysis when making a decision?
non-differential future costs sunk costs
The two levels that standards may be set at are:
normal and ideal.
Disadvantages of AAR
not a true rate of return; time value of money is ignored, uses an arbitrary benchmark cutoff rate, based on accounting (book) values, not cash flows and market values
to identify the costs that are avoidable in a specific decision situation these steps should be followed
o Eliminate costs and benefits that do not differ between alternatives (sunk and future costs) o Use of the remaining cost and benefits that do differ between alternatives in making the decision (differential or avoidable costs)
Isolating relevant costs is desirable for at least two reasons
o Rarely will enough information be available to prepare a detailed income statement for both alternatives o Mingling irrelevant costs with relevant costs may cause confusion and distract attention from the information that is really critical
the capacity of a bottleneck can be effectively increased in a number of ways including:
o Working overtime on the bottleneck o Subcontracting some of the processing that would be done at the bottleneck o Investing in additional machines at the bottleneck o Shifting workers from processes that are not bottlenecks to the process that is the bottleneck o Focusing business process improvement efforts such as Six Sigma on the bottleneck o Reducing defective units
Working Capital:
often increases when a company takes on a new project.
advantage of using external suppliers
one advantage of using external suppliers instead of vertical integration is that suppliers can pool demand from a number of companies and enjoy economies of scale, which can result in higher quality and lower costs than a company could obtain if it made the parts on its own
Multiple Rates of Return
one potential problem in using the IRR method if more than one discount rate makes the NPV of an investment zero
Mutually exclusive investment decisions
one potential problem in using the IRR method is the acceptance of one project excludes that of another
What does debt to equity ratio assess?
one type of leverage ratio that indicates the relative proportions of debt to equity at one point in time on a companies balance sheet
The most common budget period is:
one year.
operating budgets generally cover a _______ period
one-year
The incremental-cost approach:
only includes costs and revenues that differ between the alternatives being considered; is preferable to the total-cost approach when only two alternatives are being considered
Variable Costing
only those manufacturing cost that vary with output are treated as product costs. Expensed at its entirety each period
The _____ budget feeds directly into the cash budget
operating
The _____ budget is made up of the sales forecast, production budget, direct materials purchases budget, direct labor budget, manufacturing overhead budget, selling and administrative budget, and budgeted income statement
operating
The _____ budgets also affect other elements of the budgeted balance sheet, including budgeted accounts receivable, inventory, accounts payable, and owner's equity
operating
_____ budgets includes sales, productions, and purchases budgets
operating
The best measure of a company's ability to generate sufficient cash to continue as a going concern is net cash provided by:
operating activites.
Cash receipts from interest and dividends are classified as:
operating activities.
The _____ _____ establish goals for the company's sales and production personnel
operating budget
_____ _____ budgets that cover the organization's planned operating activities for a particular period of time
operating budgets
Any final decision to drop or add a business segment is going to hinge primarily on the impact the decision will have on net ___________ __________.
operating income
any final decision to drop or add a business segment is going to hinge primarily on the impact the decision will have on net __ __.
operating income
any final decision to drop or add a business segment is going to hinge primarily on the impact the decision will have on net _______ _______.
operating income
any final decision to drop or add business segment is going to hinge primarily on the impact the decision will have on net __ __.
operating income.
A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as _________ ________
operating leverage
A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as _________ _________.
operating leverage.
Distinguish whether is an operating or financing budget 1. cash budget 2. sales budget 3. raw materials purchases budget 4. selling and administrative expense budget 5. budgeted balance sheet 6. manufacturing overhead budget 7. direct labor budget 8. budgeted income statement 9. production budget
operating= 2, 3, 4, 6, 7, 8, 9 financing= 1, 5
An _____ cost is what you give up when you choose to do something
opportunity
If a company has a resource that could be used for something else, the _____ cost is the profit that could be derived from the best alternative use of the resource
opportunity
Space being used that would otherwise be idle has a(n) __________ cost of zero.
opportunity
When managers are forced to choose one alternative over another due to limited employee time and equipment availability, the business manager is facing _____ costs
opportunity
if a company has a resource that could be used for something else, the __ cost is the profit that could be derived from the best alternative use of the resource.
opportunity
space being used that would otherwise be idle has a(n) __ cost of zero.
opportunity
space being used that would otherwise be idle has a(n) ______ cost of zero
opportunity
the potential benefit given up when selecting one alternative over another is a(n) __ cost.
opportunity
the potential benefit given up when selecting one alternative over another is a(n) _______ cost
opportunity
A/an _____ _____ is the forgone benefit of choosing to do one thing over another
opportunity cost
The forgone benefit of choosing one decision alternative over another is its _____ _____
opportunity cost
_____ _____ of make or buy decisions occur when a company loses an opportunity by making something internally as opposed to buying it from someone else (vice versa)
opportunity cost
_____ _____ benefits given up when one alternative is chosen over another
opportunity costs
opportunity cost in accounting records
opportunity costs are not found in accounting records because they are not cash outlays. Opportunity costs are relevant to decisions.
if a company has a resource that could be used for something else, the _______ cost is the profit that could be derived from the best alternative use of the resource.
oppportunity
__-__ activities occur regardless of which customers are served, which products are produced or how many batches are run or units made.
organization sustaining
The lean production management approach:
organizes resources around the flow of business processes, tends to result in fewer defects, is sometimes called just-in-time production.
Initial investment
outflow
working capital require is a cash ________ but working capital released is a cash _______________
outflow inflow
usually, traditional costing __ high-volume products and __ low-volume products
overcosts undercosts
activity-based costing uses numerous __ cost pools.
overhead
in activity-based costing, first-stage allocation assigns __ costs to activity cost pools.
overhead
Ordering materials, setting up machines, assembling products, and inspecting products are examples of:
overhead cost pools.
Managers may make the mistake of assigning idle costs and organization-sustaining costs to products, resulting in _______ product costs and ________ product margins.
overstated, understated
Working capital needed for a new project is treated as:
part of the initial investment in the project
A(n) _____ budget allows employees throughout the organization to have input into the budget setting process
participative
Disadvantages of _____ budgeting include the amount of time consumed and the fact that employees may try to build slack into a budget
participative
A budget prepared with the full cooperation of management at all levels is a ___ budget.
participative / self-imposed
_____ _____ method that allows employees throughout the organization to have input into the budget setting process
participative budgeting
A _____ approach to budgeting is more likely to motivate people to work toward an organization's goal than a _____ _____ approach
participative, top down
the length of time it takes for a project to recover its initial cost from the net cash inflows that it generates is the _________ _________
pay back period
The ____ period does not focus on a project's profitability, but rather on a project's abiliity to earn a quick return.
payback
The ______ period doe not focus on a project's profitability, but rather on a project's ability to earn a quick return
payback
The basic premise of the _____ method is that the more quickly the cost of an investment can be recovered, the more desirable the investment is.
payback
Variable costing treats fixed manufacturing overhead as a ______ cost
period
activity-based costing treats organization-sustaining costs as __ costs.
period
in traditional costing, which type of cost in not included in the product margin?
period
in traditional costing, which type of cost is not included in the product margin?
period
Fixed manufacturing overhead is a ______ cost under Variable costing and a _____ cost under absorption costing
period, product
which of the following types of budgets keep managers focused one year ahead, so they do not become too narrowly focused on short-term results?
perpetual or continuous
Developing and preparing various budgets to achieve those goals is part of the ___ process.
planning
Developing goals and preparing various budgets to achieve those goals is part of the ____ process:
planning
__ involves developing goals and preparing various budgets to achieve those goals.
planning
_____ involves developing goals and objectives for the future
planning
developing goals and preparing various budgets to achieve those goals is part of:
planning
Budgets are used for 2 distinct purposes, ______ and ______
planning and control
developing goals for the budget is _____while______ involves steps taken to ensure that steps towards meeting the goal are being followed
planning, control
_____ involves developing goals for the budget, whereas _____ involves determining if goal have been followed
planning, controlling
Activity-based costing uses more cost _____ than traditional costing.
pools
The costs provided by a well-designed activity-based costing system are:
potentially relevant to a decision.
Overhead applied to a particular job =
predetermined overhead rate X amount of the allocation base incurred by the job
The formal for applying overhead to a specific job is:
predetermined overhead rate x amount of allocation base incurred by job.
The two broad categories into which capital budgeting decisions fall are ________ decisions and ________ decisions.
preference; screening
The profitability index is computed by dividing the:
present value of cash flows by the initial investment.
Companies that sell products whose prices are set by market forces are called:
price takers.
The end result of the budgeting process is a set of _____ ______ financial statements that include a budgeted income statement, statement of cash flows, and budgeted balance sheet
pro forma
if some products must be cut back because of a constraint:
produce the products with the highest contribution margin per unit of constrained resource
To maximize total contribution margin when a constrained resource exists:
produce the products with the highest contribution margin per unit of the constrained resource
to maximize total contribution margin when a constrained resource exists
produce the products with the highest contribution margin per unit of the constrained resource
the first line of the direct labor budget consists of the budgeted units expected to be _______ during the period.
produced
the first line of the direct labor budget consists of the budgeted units expected to be __ during the period.
produced.
Designing and advertising a product are all _____-level activities.
product
designing and advertising a product are all __-level activities
product
Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time. If the company's constraint is machine hours, to maximize profit, they should first fill the demand for
product ABC The company should fill the demand for the product with the highest CM per unit of the constrained resource. ABC's is $2 per minute of machine time (CM of $10/5 minutes) while XYZ's is only $1.50 per minute of machine time (CM of $15/10 minutes.)
__ help companies channel their resources into the most profitable growth opportunities.
product and customer profitability reports
Categories of customer value propositions are:
product leadership, customer intimacy, and operational excellence.
In a manufacturing company, the ___ budget shows the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory.
production
In a manufacturing company, the ___ production budget is used to determine the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget.
production
In a manufacturing company, the ____ budget shows the number of units that must be manufactured to satisfy needs and provide for the desired ending inventory:
production
In a manufacturing company, the ______ budget is prepared right after the sales budget
production
In a manufacturing company, the ______ budget is prepared right after the sales budget:
production
The _____ budget shows the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory
production
The direct labor budget is based on the ___ budget.
production
The raw materials purchases, direct labor and manufacturing overhead budgets are all based on the ____ budget
production
in a manufacturing company, the __ budget shows the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory.
production
in a manufacturing company, the _______ budget is used to determine the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget
production
in a manufacturing company, the _________ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory.
production
Once the _____ _____ has been prepared, the raw materials purchases, the direct labor, and the manufacturing overhead budgets can be prepared
production budget
Which budget is prepared directly after the sales budget in a manufacturing company?
production budget
_____ _____ budget that shows how many units need to be produced each period
production budget
in a manufacturing company, which budget is used as the basis for creating the direct materials budget, the direct labor budget, and the manufacturing overhead budget?
production budget
the cash budget uses information from several other budgets. which of the following budgets is NOT used to prepare cash budget?
production budget
the direct materials budget directly relies on the:
production budget
which budget is prepared directly after the sales budget in a manufacturing company?
production budget
The most common reports prepared using ABC data are the product and customer _______ reports.
profitability
the most common reports prepared using ABC data are the product and customer __ reports.
profitability.
effectively managing an organization's constraints is a key to increased:
profits
NPV and IRR rules always lead to identical decisions as long as these conditions are met:
project's cash flows must be conventional (meaning first cash flow must be negative), and all the rest are positive, AND the project must be independent the decision to accept or reject this project does not affect the decision to accept or reject any other
A flexible budget:
projects budget data for various levels of activity.
linear programming
quantitative method to find the proper combination or mix of products
The discount rate can also be referred to as the minimum required _____ of _____
rate ; return
Any purchased materials that will go into the finished product are first recorded in _______ ________ inventory account.
raw materials
_____ _____ _____ _____ budget that indicates the quantity of raw materials that must be purchased to meet production and raw materials inventory needs
raw materials purchases budget
When preparing a direct materials purchase budget, which of the following is needed to calculate the raw materials to be purchased?
raw materials required per unit & beginning inventory of raw materials
which of the following is needed to calculate raw materials to be purchased on the direct materials budget
raw materials required per unit, beginning inventory of raw materials
Company A has sales of $500,000 variable costs of $350,000, and fixed costs of $150,000. Company a has:
reached the break-even point or a contribution margin equal to fixed costs.
Sales Mix
refers to the relative proportions in which a company's products are sold
Preference decisions
relate to selecting from among several acceptable alternatives
preference decisions
relate to selecting from among several acceptable alternatives
Prerence decisions
relate to selecting from among several acceptable alternatives. A decision in which the alternatives must be ranked.
screening decisions
relate to whether a proposed project is acceptable
a screening decisions....
related to whether a proposed project is acceptable
It is often possible for a manager to increase the capacity of a bottleneck, which is called __________ the constraint.
relaxing
which of the following involves increasing the capacity of a bottleneck?
relaxing the constraint
Costs that differ between alternatives are called _____ costs
relevant
Costs that differ between alternatives are called __________ costs.
relevant
Only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating __________ costs desirable.
relevant
Only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating___ costs desirable.
relevant
Only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating_________costs desirable
relevant
Only those costs and benefits that differ in total between alternatives are _____ in a decision
relevant
Only those costs and benefits that differ in total between alternatives are _______ in a decision.
relevant
When planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a(n) __________ cost.
relevant
costs that differ between alternatives are called __ costs.
relevant
only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating ________ costs desirable.
relevant
only those costs and benefits that differ in total between alternatives are __ in a decision.
relevant
only those costs and benefits that differ in total between alternatives are _________ in a decision.
relevant
when making a decision to continue using a current machine versus purchasing a new machine, what type of costs need to be included in the analysis?
relevant
when planning a trip and deciding to drive your car or take the train, gasoline is a:
relevant
when planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a(n) __________ cost
relevant
A/an _____ _____ has the potential to influence a particular decision and will change depending on the alternative a manager selects
relevant cost
when making a decision to drive or take the train on a trip, the cost of the train ticket is a:
relevant cost
which of the following refers to the costs that always differ between alternatives?
relevant costs
Costs that will differ between alternatives and influences the outcome of a decision are:
relevant costs.
Cost assumptions are reasonably valid within the ________ ________ of activity.
relevant range
The local summer baseball league wants to buy new uniforms for its teams. The current uniforms are quite old and will require $400 in repairs before they can be handed out to players next week for the upcoming season. The old uniforms will be replaced as soon as new ones can be purchased. League leaders have investigated several possible fund raisers and have narrowed the choice down to 2 options: candy sales and car washes. Each option can generate the $2,500 that the new uniforms would cost. Option 1: The candy sales option would require the league to purchase 2,000 candy bars at a cost of $0.75 each. The players and coaches would then sell the bars for $2 each. The league estimates that it would take about 4 weeks to sell the candy and collect all of the money Option 2: The car wash option would require about $200 for buckets, sponges, soap, and towels. A local business has offered to donate the water (estimated at $300 total) and a location. The car washes would be held on Saturdays, and each team would be required to provide workers. Each car wash day is expected to generate $450 in proceeds, so the league expects that it would take 6 weeks to raise $2,500 Which factors are relevant and irrelevant to deciding which project to engage in 1. Repair costs for the old uniforms, $400 2. Initial outlay to purchase the candy bars, $1,500 3. Initial outlay to purchase car wash supplies, $200 4. Cost of water for the car wash option, $300 5. Cost of the new uniforms, $2,500 6. Additional 2 weeks that the car wash option would require to raise the money
relevant= 2, 3, 6 irrelevant= 1, 4, 5
A fixed cost is a cost which:
remains constant in total with changes in the level of activity.
Preference decisions
require ranking all the acceptable investment proposals
GAAP and IFRS rules:
require that the same method be used for both internal and external segment reporting require segmented financial data be included in annual reports
the internal rate of return is compared against the minimum ___ rate of return when analyzing the acceptability of an investment project .
required
The underlying idea behind ___ accounting is that a manager should be held accountable for only those items the manager can actually control.
responsibility
The underlying idea behind ____ accounting is that a manager should be held accountable for only those items the manager can actually control:
responsibility
The underlying idea behind________ accounting is that a manager should be held accountable for only those items the manager can actually control
responsibility
which of the following holds managers accountable for revenues and costs?
responsibility accounting
Using a _____ _____, when one budget period passes, another is automatically added at the end
rolling budget
A detailed schedule showing the expected sales for the budget is presented on the ___ budget
sales
Both the production and selling and administrative expense budgets are prepared using information directly from the ___ budget.
sales
Both the production and selling and administrative expense budgets are prepared using information directly from the ____ budget:
sales
Eliminated of one product may also impact _____ of the remaining products as customers either move to one of the remaining products or move all or part of their business to another company
sales
Selling price per unit multiplied by the quantity sold equals total ________
sales
The _____ budget is used to compute the cash receipts, while the direct materials purchases, direct labor, manufacturing overhead, and selling administrative expense budgets are used to compute budgeted cash payments
sales
The first step in preparing the master budget process is the ____ budget or forecast
sales
The production budget is based upon the _____ budget
sales
What is usually the major source of receipts in the receipts section of the cash budget:
sales
joint costs are traditionally allocated among the different products at the split-off point. a typical approach is to allocate joint costs according to the relative __ value of the end products.
sales
joint costs are traditionally allocated among the different products at the split-off point. a typical approach is to allocate the joint costs according to the relative __ value of the end products.
sales
the __ budget is a detailed schedule showing the expected sales for the budget period.
sales
the first step in the budgeting process is preparing the ________budget
sales
the first step in the budgeting process is the preparation of the __ budget.
sales
what is usually the major source of receipts in the receipts section of the cash budget?
sales
individual customer __ minus individual customer __ equals customer margin.
sales costs
Which budget is a detailed schedule showing the expected sales for the budget period:
sales budget
Which budget is a detailed schedule showing the expected sales for the budget period?
sales budget
Which one of the following budgets should be completed first in a manufacturing company?
sales budget
______ _____ estimate of the total sales revenue to be generated in each budget period
sales budget
important chart (order of budgets)
sales budget->selling and admin expense budget production budget-><-ending inventory budget DM DL MOH Cash budget Budgeted income statement Budgeted balance sheet
Non manufacturing costs include:
sales commissions and the CEO's salary.
Which of the following statements are true?
sales commissions are period costs and period costs are expensed in the same period in which they are incurred.
The _____ _____ is the starting point because all of the other budgets are based on it
sales forecast
The ______ ______ is based on last period's sales, industry trends, info from top management about sales objectives, input from research and development, and planned marketing activities
sales forecast
The starting point for preparing the master budget is the _____ _____
sales forecast
_____ ______ number of units expected to be sold each budget period. Serves as the starting point for all other components of the master budget
sales forecast
The relative proportions in which a company's products are sold is referred to as _______ ________
sales mix
The relative proportions in which a company's products are sold is referred to as ________ _________.
sales mix.
To calculate total sales on the sales budget, multiply budgeted sales in units by:
sales price per unit
what is multiplied by the budgeted unit sales to obtain total sales on the sales budget?
sales price per unit.
The calculation to determine target cost is:
sales price-desired profit.
the investment value used in the payback period calculation when new equipment is being considered should be the cost of the new equipment net of any ______ value from the old equipment being replaced
salvage
when using the simple rate of return, the intial investment should reduced by the _______________ value of old equipment
salvaged
Sales budget
schedule showing the expected sales for the budget period
One of the two broad categories of capital budgeting decisions, a _______ decision, relate to whether a proposed project is acceptable based on a preset criterion.
screening
The payback method is a useful tool when making a decision.
screening
two board categories into which capital budgeting decision fall are _________ and _________ decisions
screening preference
Activity rates are used to apply overhead costs to products and customers in the ____-stage allocation.
second
activity rates are used to apply overhead costs to products and customers in the __-stage allocation.
second
which stage in activity-based costing uses activity rates to apply overhead costs to products?
second
The ______ ______ is the best gauge of the long-run profitability of a segment
segment margin
______ _____ calculated as revenue minus all costs that are directly traceable to a particular business segment
segment margin
Segment Margin = and What does it represent
segment's contribution margin - its traceable fixed costs. It represents the margin available after a segment has covered all of its own traceable costs.
A part or activity of an organization that managers want to gather cost, revenue or profit data about is a(n)
segment.
A budget prepared with the full cooperation of management at all levels is a ________ budget
self-imposed, or participative
Deciding what to do with a joint product at the split-off point is a(n) _________ or __________ __________ decision.
sell or process further
deciding what to do with a joint product at the split-off point is a(n) __ or __ __ decision.
sell or process further
Deciding what to do with a joint product at the split-off point is a:
sell or process further decision
the budget that shows the budgeted expenses for areas other than the manufacturing is the __ and __ expense budget.
selling administrative
Budgeted expenses for areas other than manufacturing are shown on the ___ budget.
selling and administrative
Budgeted expenses for areas other than manufacturing are shown on the ____ budget:
selling and administrative
_____ ______ ______ _____ _____ budget of selling and administration expenses required for the planned level of sales
selling and administrative expense budget
Which of the following budgets are directly based on information from the sales budget?
selling and administrative expense budget & production budget
contribution margin per unit=
selling price per unit-variable cost per unit
The budget that shows the budgeted expenses for areas other than manufacturing is the _____ and _____ expense budget
selling, administrative
the budget that shows the budgeted expenses for areas other than manufacturing is the ________ and _________ expense budget
selling; administrative
_____ firms do not need to prepare production budgets, inventory budgets, or manufacturing overhead budgets but they need to prepare budgets to predict sales revenue, labor costs, supplies, and other non manufacturing expenses such as commissions and advertising
service
Companies have a corporate social responsibility to provide _________ with competent management and easy access to complete and accurate financial records.
shareholders
In the _____ run, constrained resources impacts management decisions by maximizing the amount of contribution margin generated by the most limited resources
short
______ _____ _____ specific goal that management wants to achieve in the short run; usually no longer than 1 year
short term objective
The required rate of return:
should be equal to or greater than the cost of capital; is the minimum rate of return a project must yield to be acceptable.
A manager who wants to submit a budget that is easy to attain will try to put budgetary ___ into his or her budget.
slack
A manager who wants to submit a budget that is easy to attain will try to put budgetary ______ into his or her budget
slack
A manager who wants to submit a budget that is easy to attain will try to put budgetary _________ into his or her budget.
slack
variable selling and administrative expenses are calculated by multiplying the budgeted units _______ by the variable selling and administrative expense per unit
sold
what is the underlying idea behind responsibility accounting?
someone must be held responsible for each cost or the cost will grow out of control.
which of the following does not have an opportunity cost?
space being used that has no alternative use.
A(n) __________ order is a one-time order that is not considered part of the company's normal ongoing business.
special
a(n) __ order is a one-time order that is not considered part of the company's normal ongoing business.
special
If the company has limited production capacity, filling the _____ _____ may create opportunity costs including lost revenue from regular sales, back orders, ect
special order
Negative consequences of accepting a _____ _____ include the potential impact sales made through "regular" channels, such as customers demanding the same reduced price that was given to the "special" order
special order
a one-time order that is not considered part of the company's normal ongoing business is referred to as a(n) ________ ________ decision
special order
a one-time order that is not considered part of the company's normal ongoing business is referred to as a(n) __________ ________ decision
special order
a one-time order that it not considered part of the company's normal ongoing business is referred to as a(n) __ __ decision.
special order
a one-time order that it not considered part of the company's normal ongoing business is referred to as a(n). __ __ decision.
special order
Management decision in which fixed manufacturing overhead is ignored as long as there's enough excess capacity to meet the order is _____ _____ _____
special order decision
Short term management decision made using differential analysis is _____ _____ _____, _____ _____ _____ _____, and _____ _____ _____ _____
special order decision, make or buy decisions, and keep or drop decision
_____ _____ _____ appellation of incremental analysis that requires managers to decide whether to accept or reject an order that's outside the scope of normal sales
special order decisions
_____ _____ _____ involve deciding whether to accept or reject an order that outside the normal scope of business, often at a reduced price
special order decisions
A likely consequence of excessive inventory levels is
storage problems
More descriptive name for capital budgeting
strategic asset allocation
A _____ ____ is the starting point of the planning process and is the vision of what management wants to organization to achieve over the long term
strategic plan
The starting point of the planning process is management's _____ _____ or vision for the organization
strategic plan
_____ _____ managers' vision of what they want the organization to achieve over a long term horizon
strategic plan
Which of the following is NOT required to be viewed as a credible leader?
strong mentoring skills
_____ _____ products where one good can be used instead of another. Examples include butter and margarine, or sugar and artificial sweeteners
substitute products
to reconcile ABC product margin to net income:
subtract overhead costs not assigned to products.
A(n) __________ cost is a cost that has already been incurred and cannot be avoided regardless of what a manager decides to do.
sunk
a cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n) ____________ cost
sunk
costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are __ costs.
sunk
costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs
sunk
examples of irrelevant costs
sunk and future costs
A previously incurred cost which will not change in the future is a(n):
sunk cost.
Costs that are relevant to short term decision making are _____ _____
sunk costs
Costs that have already been incurred are _____ _____
sunk costs
_____ _____ are costs that have already been incurred and are not relevant to future decisions
sunk costs
Which type of cost is never relevant and should be disregarded when making decisions?
sunk.
Companies should provide __________ with reasonable times to prepare orders and hassle free acceptance of timely and complete deliveries.
suppliers
_____ specific actions or mechanisms that management uses to achieve objectives
tactics
split-off point
that point in the manufacturing process where some or all of the joint products can be recognized as individual products
Payback Period
the amount of time required for an investment to generate cash flows to recover its initial cost
opportunity cost
the benefit that is foregone as a result of pursuing some course of action; are not actual cash outlays and are not recorded in the formal accounts of an organization.
which of the following is needed to prepare a sales budget?
the budgeted number of units to be sold
the receipts, disbursements, excess or deficiency, and financing section are all parts of the:
the cash budget
A Master Budget lays out...
the company's sales, production, and financial goals
people have a tendency to assume that if a cost is traceable to a segment, then
the cost is automatically an avoidable cost (not true)
Drawbacks of a discounted payback period
the cutoff still has to be arbitrarily set and cash flows beyond that point are ignored
Budget Variance
the difference between actual fixed manufacturing overhead and the budgeted fixed manufacturing overhead for the period
Spending Variance
the difference between the ACTUAL amount of the cost and how much the cost should have been, given the actual level of activity (cost in the FLEXIBLE budget)
Spending Variance
the difference between the actual amount of the cost and how much the cost should have been, given the actual level of activity
Differential cost is:
the difference in cost between two alternatives and also known as incremental cost.
differential revenue
the difference in revenue between two alternatives
IRR (internal rate of return
the discount rate that makes the NPV of an investment zero
When using the Internal rate of return method to rank competing investment projects:
the higher the internal rate of return, the more desirable the project
Discounted payback period
the length of time required for an investment's discounted cash flows to equal its initial cost
bottleneck
the machine or process that is limiting overall output
the required rate of return is
the min. rate of return a project must yield to be acceptable
Residual Income
the net operating income that an investment center earns above the minimum required return on its operating assets
what activity measure it most appropriate for a cost pool consisting of the costs of resources consumed taking and processing customer orders?
the number of customer orders
which activity measure is most appropriate for a cost pool consisting of the costs of resources consumed taking and processing customer orders?
the number of customer orders.
which of the following is considered a sunk cost when planning a trip?
the original cost of the car
Shortcoming of the payback method when making a capital investment decision include:
the payback method ignores all cash flows that occur after the payback period; the payback method does not consider the time value of money.
employees designated as indirect factory workers should provide what information to assist in first-stage allocations in ABC?
the percentage of employee time spent for each activity pool.
split off point
the point in the manufacturing process at which the joint products can be recognized as separate products
opportunity cost
the potential benefit that is given up when one alternative is selected over another.
Capital budgeting decisions focus on cash inflows and outflows rather than accounting income because:
the present value of a cash flow depends on when it occurs; accounting net income is based on accruals
Profitability Index (PI)
the present value of an investment's future cash flows divided by its initial cost. also benefit/cost ratio
Discounted Cash Flow (DCF) Valuation
the process of valuing an investment by discounting its future cash flows
Process costing is used when:
the production process is continuous.
Benefit/Cost ratio
the profitability index of an investment project
The internal rate of return is equal to or greater than the required rate of return
the project is considered to be acceptable
acceptable project with a net present value of zero
the project promises a return equal to the required rate of return
acceptable project with a positive net present value when...
the project promises a return grater than the required rate of return
unacceptable project with a negative net present value
the project promises a return less than the required rate of return
the internal rate of return is less than the required rate of return
the project should be rejected
real or economic depreciation
the reduction in resale value of an asset through use or over time
Sales mix is:
the relative percentage in which a company sells its multiples products.
In the differential approach, only
the relevant costs are considered
The IRR on an investment is:
the return that results in a zero NPV when it is used as the discount rate
a set of activities ranging from development to production to after-sales service is called:
the value chain
A set of activities ranging from development to production to after-sales service is called
the value chain.
The most effective way to strengthen a chain is to focus on:
the weakest link
For an activity base to be useful in cost behavior analysis:
there should be a correlation between changes in the level of activity and changes in costs.
What is the purpose of CVP?
to estimate how profits are affected by the following 5 factors: Selling Prices Sales volume Unit variable costs total fixed costs mix of product sold
Unlike a "_____ ______" approach to budgeting where budgets are set by upper management and imposed on employees, participative budgeting allows employees to provide input into their own budget
top down
______ _____ _____ budgeting method in which top management sets a budget and imposes it on lower levels of the organization
top down approach
all manufacturing costs are allocated to products in a(n) __ system, regardless of whether the product consumes the resources associated with those costs.
traditional
in a(n)__ costing system, only direct materials, direct labor, and manufacturing overhead are assigned to products.
traditional
what cost system uses a volume-related allocation base for all of the manufacturing costs?
traditional
which costing method assigns only manufacturing costs to products?
traditional
An income statement focusing on product and period costs has been prepared using a ________ format, while a(n) ________ format income statement makes a distinction between fixed and variable costs.
traditional, contirbution
__ drivers are simple counts of the number of times an activity occurs.
transaction
match the following words with the correct description.
transaction driver-number of times an activity occurs duration driver-amount of time to perform an activity activity measure-cost driver activity cost pool-amount of costs accumulated for a single activity.
Absorption Costing
treats all manufacturing costs as product costs, regardless of whether they are variable or fixed. required for external reports according to GAAP. IFRS explicitly requires companies to use absorption costing. Most companies use it for both external and internal reports
A postaudit can help reduce the tendency to inflate the benefits or downplay the costs in a proposal because it involves checking whether or not expected results are actually realized.<br><br>
true
T/F a project with a positive NPV will recover the original cost of the investment plus sufficient csh inflows to compensate for trying up funds
true
T/F the net present value method automatically provides for return of the original investments
true
T/F when calc.ing the payback period, any depreciation that results form the investment should be added back to the annual net operating income
true
T/F: Budgetary slack can sometimes be beneficial
true
When the project does not have constant net incremental income over its useful life, the simple rate of return computed will fluctuate from year to year.
true
when a team is created to design and implement an ABC system, it should include members that represent many different functional areas.
true
some manufacturing costs may be excluded from product cost when using ABC.
true.
What is capital budgeting all about?
trying to determine whether a proposed investment or project will be worth more than it costs once it is in place
joint products
two or more products produced from a common input
joint products
two or more products that are produced from a common input
For a single product company, the margin of safety in ________ form is calculated by dividing the margin of safety in dollar by the selling price per unit
unit
Power to run production equipment would be a(n) _____-level activity.
unit
power to run production equipment would be a(n) __-level activity.
unit
match the following activity levels in activity-based costing with the correct activity.
unit level-power to run production equipment batch level-machine set up product level-product design customer level-sales calls organization sustaining-factory cooling system.
Profit = (selling price per unit * quantity sold) - (variable expenses per ________ * quantity sold) - __________ expenses
unit; fixed
Under absorption costing, fixed manufacturing overhead costs flow to the income statement when:
units are sold
Variable selling costs are incurred on:
units sold
One mistake companies make when preparing segmented income statements is arbitrarily assigning _____ fixed costs to segments.
untraceable
The project generates cash inflows that vary annually
use the trial and error process to find the rate of return that will equate each inflows with cash outflows.
Buster Company reported a net loss of $3,000 for the year ended December 31, 2008. During the year, accounts receivable increased $7,000, merchandise inventory decreased $5,000, accounts payable decreased by $10,000, and depreciation expense of $5,000 was recorded. During 2007, operating activities:
used net cash of $10,000
joint cost
used to describe the costs incurred up to the split off point o Common costs that are incurred to simultaneously produce a variety of end products o Are irrelevant in decisions regarding what to do with a product from the split off point forward
A(n) ______ _______ consists of the major business functions that add value to a company's products and services.
value chain
A(n) __________ __________ includes activities ranging from development to production to after-sales service.
value chain
a(n)__ __ includes activities ranging from development to production to after-sales service.
value chain
activities ranging from development to production to after-sales service are called a(n) _____ ________.
value chain
A cost that changes in direct proportion to changes in the activity level is a ________ cost.
variable
Segment CM equals segment rev. minus the ______ expenses for the segment
variable
Within the relevant range, _____ costs remain constant on a per unit basis.
variable
Contribution margin is the amount of revenue remaining after deducting:
variable costs.
Variable expenses/Sales is the calculation of the _______ _______ ratio.
variable expense
The contribution margin is equal to sales minus:
variable expenses.
A variable cost is a cost that:
varies in total in proportion to changes in the level of activity.
Variable Cost
varies, in total, in direct proportion to changes in the level of activity.
one advantage of using external suppliers instead of __ integration is that suppliers can pool demand from a number of companies and enjoy economies of scale, which can result in higher quality and lower costs than a company could obtain if it made the parts on its own.
vertical
Less dependence on suppliers is an advantage of
vertical integration
__ __ can help companies control quality better by producing their own parts and materials, rather than relying on the quality control standards of outside suppliers.
vertical integration
which term refers to a company that is involved in more than one activity in the value chain?
vertical integration
when a company is involved in more than one activity in the entire value chain, it is __ __.
vertically integrated
when a company is involved in more than one activity in the entire value chain, it is ________ __________.
vertically integrated
A distinguishing feature of managerial accounting is:
very detailed reports.
When constructing a CVP graph, the horizontal (x) axis represents unit ________
volume
CVP analysis allows companies to easily identify the change in profit due to changes in:
volume, costs, and selling price.
Traditional cost systems allocate all manufacturing costs using ______ allocation base(s).
volume-related
linear programming
what does a company do if it has more than one potential constraint? For example, a company may have limited raw materials, limited direct labor-hours available, limited floor space, and limited advertising dollars to spend on product promotion. How would it determine the right combination of product to produce? The proper combination or "mix" of product can be found by use of a quantitative method known as linear programming, which is covered in quantitative methods and operations management courses.
Price Standards
what specifies how much should be paid for each unit of the input
vertical integration
when companies start making their own raw materials; provides certain advantages such as a smoother flow of parts and materials, better quality control, and realized profits.
contribution margin
when making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative income statement.
When should a special order be accepted?
when the incremental revenue from the special order exceeds the incremental costs of the order
when should a special order be accepted?
when the incremental revenue from the special order exceeds the incremental costs of the order
Cash inflow
working capital is release for use elsewhere within the company
cash inflow
working capital is released for use elsewhere within the company
Cash outflow
working capital is tied up for project needs
cash outflow
working capital is tied up for project needs
In the ease of adjustment coding scheme, ____ costs can adjust in response to changes in activity, but require management action.
yellow
On a profit graph, the sales volume where profit is ________ is the break-even point
zero
when a resource, such as space in the factory, has no alternative use, what is its opportunity cost?
zero
_____ _____ budgeting requires managers to justify their expenditures each and every budgeting cycle instead of simply assuring previous period's levels are still appropriate
zero based
joint costs
~: are irrelevant in decisions regarding what to do with a product after split-off AND cannot be avoided once a process is started.
vertically integrated
• When a company is involved in more than one activity in the entire value chain
to prepare a budget balance sheet as of December 31, 3012, data is needed from the:
balance sheet as of December 31, 2011.
to prepare a budgeted balance sheet as of December 21,2012, the data is needed from the:
balance sheet as of december 31,2012
Setting up equipment, placing orders, and arranging shipments to customers are all examples of _____-level activities.
batch
setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of __-level activities.
batch
How do you estimate mixed costs with the high-low method?
begin by identifying the period with the lowest level of activity and the period with the highest level of activity change in cost / change in activity
A budgeted balance sheet is developed using data from the ___ of the budget period and data contained in the various schedules.
beginning
A budgeted balance sheet is developed using data from the ____ of the budget period and data contained in the various schedules:
beginning
a budgeted balance sheet is developed using data from the __ of the budget period and data contained in the various schedules.
beginning
Comparing the performance within an organization to that of other similar organizations is called ________.
benchmarking
Resource that's insufficient to meet the demands placed on them is _____
bottleneck
The machine or process that is limiting overall output is a(n):
bottleneck
The machine process that is limiting overall output is a
bottleneck
The process that's limiting overall output is called a(n) _____
bottleneck
_____ is the most constrained resource or the process that limits a system's output
bottleneck
the machine or process that is limiting overall output is a(n):
bottleneck
the machine or process that is limiting overall output is called a(n) __.
bottleneck
A quantitative plan for acquiring and using resources over a specified time period is a(n) ___.
budget
A quantitative plan for acquiring and using resources over a specified time period is an _____:
budget
A(n) _____ translates company objectives into financial terms
budget
Management's detailed plans for the future are often expressed formally in a(n)
budget
The purpose of a(n) ___ is to assist in establishing goals and measuring operating results.
budget
a(n) __ is a quantitative plan for acquiring and using resources over a specified time period.
budget
the purpose of a(n) __ is to motivate people and coordinate their efforts.
budget
_____ _____ is crucial because companies use budgets to plan their ongoing operations so they'll be able to meet their short term and long term objectives
budgetary planning
Managers who intentionally understate expected sales or overstate expected expenses are creating _____ _____
budgetary slack
When a manager creates a budget that is too easy to attain, ___ ___ occurs.
budgetary slack
When a manager creates a budget that is too easy to attain, ____ occurs:
budgetary slack
_____ _____ is a cushion that managers may try to build into their budget by understating expected sales or overstating budgeting expenses so that they're more likely to come in under budget for expenses and over budget for revenues
budgetary slack
______ ______ results form employees' attempts to build a cushion or margin of safety into their budget so that they'll be more likely to meet or exceed their budgetary goal, and thus receive a better performance evaluation
budgetary slack
______ _______ can be detrimental if other decisions are based on the budget, without adjustment for it
budgetary slack
which of the following is related to submitting a budget that is too easy to obtain?
budgetary slack
The _____ _____ _____ provides info about a company's expected financial position at a specific point in time
budgeted balance sheet
_____ _____ _____ forward looking balance sheet that shows expected balance of assets, liabilities, and owners' equity at the end of the budget period
budgeted balance sheet
_____ _____ _____ _____ _____ budgeted manufacturing cost per unit multiplied by budgeted unit sales
budgeted cost of goods sold
_____ _____ _____ is the budgeted sales less budgeted cost of goods sold
budgeted gross margin
The _____ _____ _____ provides info about a company's expected revenue, expenses, and profitability for a period of time
budgeted income statement
_____ _____ _____ is the forward looking income statement that summarizes budgeted sales revenues and expenses for the budget period
budgeted income statement
_____ _____ _____ _____ _____ is the sum of budgeted direct materials, direct labor, and manufacturing overhead stated on a per unit basis
budgeted manufacturing cost per unit
Benefits of _____ include forcing managers to look ahead, which will help them to foresee potential problems such as running out of cash or inventory
budgets
Utilizing different _____ for different purposes will minimize the impact of budgetary slack
budgets
_____ are an important part of organizing because they translate the company's objectives into financial terms and lay out the resources and expenditures required over a limited horizon
budgets
_____ give managers a goal to work toward as it directs their actions, and may either motivate or demotivate them
budgets
_____ impact the control function because they serve as a basis against which actual results are compared
budgets
which of the following is an advantage of budgeting?
budgets communicate management's plan throughout the organization.
A series of steps followed to carry out a business task that can span departmental boundaries is a:
business process
A company has a target profit $204,000. The company's fixed costs are $305,000. The CM per unit is $40. What is the break-even point in unit sales? a. 5,100 units b. 12,725 c. 7,625
c
Gifts Galore sold $189,000 worth of wrapping paper last year. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was: a. 38% b. 68% c. 53% d. 47%
c
When constructing a CVP graph, the vertical axis represents: a. variable costs b. unit volume c. dollars d. fixed costs
c
Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying him $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 50%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will: a. decrease by $7,000 b. decrease by $1,000 c. increase by $7,000 d. increase by $1,000
c Current income: ($80*200)-$5,000 = $11,000. With the change salary becomes a variable cost: ($80-$20)*200*150% = $18,000, an increase of $7,000 per month
A company with a high ratio of fixed costs: a. will not be concerned about fluctuating sales b. will be able to avoid some of the fixed costs when sales decrease by lowering production c. is more likely to experience greater profits when sales are up than a company with mostly variable costs d. is more likely to experience a loss when sales are down than a company with mostly variable costs
c & d
If there are three customer orders containing 10 units each, what is the total number of batches? a) 10 b) 30 c) 3 d) 1
c) 3
In the ease of adjustment coding scheme, which of the following are usually considered Yellow costs? a) Direct materials b) Factory equipment depreciation c) Direct labor d) Factory utilities
c) Direct labor d) Factory utilities
In activity-based costing, ______ allocation is the process of assigning overhead costs to activity cost pools. a) second-stage b) third-stage c) first-stage d) fourth-stage
c) first-stage