BSAD 530 (Advanced Managerial Accounting) Exam 3

ToolTime's total labor variance is:

$1,030F.

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.

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)

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)

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

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 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)

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.

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]

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.

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.

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.

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)

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

The required sales in units to achieve a target net income is:

(fixed cost + target net income) divided by contribution margin per unit.

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

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

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

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

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

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.

The best opinion an auditor can issue on the financial statements is

-an unqualified opinion

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 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

managers may choose to retain an unprofitable product line:

-because it attracts customers -because it helps sell other products

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 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

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

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

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.

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

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.

Assets=

-liabilities plus equity

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

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

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

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

A zero-budget asks that you

-propose output at three levels -assume that you and all your stuff don't exist anymore

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

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 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

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 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.

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

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

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

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 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

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

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

What is the current ratio for this company?

1.42

Present Value of an Annuity =

1/r (1- 1/(1+r)^n)

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

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

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

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

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

Organization sustaining

Activities occur regardless of which customers are served, which products are produced or how many batches are run or units made.

Calculate under(over) applied MOH

Actual Applied Manufacturing Overhead -Predetermined Overhead Rate x actual allocation base

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 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

Joint Costs:

Are irrelevant in decisions regarding what to do with a product after split off Cannot be avoided once a process is started

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

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

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.

Contribution Margin Ratio =

CM / Sales

The term ______ is also used when referring to an allocation base or activity measure in activity based costing

COST DRIVER

Acid-Test (Quick) Ratio =

Cash + Marketable Securities + AR + Short Term notes receivable / Current Liabilities (the liquid assets)

economies of scale

Companies may fail to take advantage of suppliers who can create an __ __ __ advantage by pooling demand from numerous companies.

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

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

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

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: The benefits of increased accuracy from ABC always outweighs the costs

False, very costly.

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

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

Dollar Sales to Break even =

Fixed expenses / CM Ratio

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

Managers may choose to retain an unprofitable product line because it

Helps sell other products Attracts customers

What is the first step in the management decision-making process?

Identify the problem and assign responsibility.

differential (avoidable)

In step two of decision making, the costs that remain are the ___ costs.

Which of the following is the best way to make use of a constrained resource

Increase the capacity of the bottleneck

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

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

Bad decisions can only result from erroneously including __________ costs and benefits when analyzing alternatives

Irrelevant

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.

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.

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

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

Top management support is needed when ABC is implemented because:

Leadership is instrumental to motivating employees to embrace ABC

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

Under ABC, non manufacturing costs:

May be allocated to products based on cause

Costs that are relevant in a given situation:

May not be relevant in another decision situation

Materials Price Variance

Measures the difference between an inputs actual price and its standard price, multiplied by the actual quantity purchased

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

Which of the following should not be included in the analysis when making a decision?

Non-differential future costs Sunk costs

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

making decision

One of the basic functions of a manager =

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

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

Contribution Margin =

Sales - Variable Expenses

What is the starting point for the Master Budget?

Sales Budget

Contribution Margin

Sales minus variable cost.

The equation which reflects a CVP income statement is:

Sales-Variable costs-Fixed costs=Net income.

Activity based costing uses activity rates to apply overhead costs to products in _______ allocation

Second stage

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

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

special order

Since the existing fixed MOH costs would not be affected by a __ __, they are not relevant.

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

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.

A set of activities ranging from development to production to after sales service is called

The Value Chain

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 ~.

bottleneck

The machine or process that is limiting overall output is called the ___; the constraint

Which of the following is considered a sunk cost when planning a trip?

The original cost of the car

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 ~.

Mixed Cost Formula

Total Fixed Cost + Variable Cost per unit of activity x activity level

Debt-to-Equity Ratio =

Total Liabilities / Stockholders Equity

Activity rates =

Total cost of each activity/total activity

Costing method assigns ONLY manufacturing costs to products:

Traditional absorption costing

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

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.

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

_____ ______ ______ _____ _____ budget of selling and administration expenses required for the planned level of sales

selling and administrative expense 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

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

In the ease of adjustment coding scheme, ____ costs can adjust in response to changes in activity, but require management action.

yellow

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

_____ 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

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 _____ ____ 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

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.

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)

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)

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

bottleneck

the machine or process that is limiting overall output

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

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.

Process costing is used when:

the production process is continuous.

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

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.

T/F: Budgetary slack can sometimes be beneficial

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.

joint products

two or more products produced from a common input

joint products

two or more products that are produced from a common input

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.

One mistake companies make when preparing segmented income statements is arbitrarily assigning _____ fixed costs to segments.

untraceable

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

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.

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

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

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: 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

power to run production equipment would be a _____-level activity

UNIT

When making decisions using ABC data:

Unavoidable fixed costs should be ignored

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 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

When a company is involved in more than one activity in the entire value chain it is _____________ _______________

Vertically Integrated

fixed costs saved > CM lost

What is the decision rule about dropping a segment?

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.

In a process cost system:

a Work in Process account is maintained for each process.

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.

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

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

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

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.

Flexible Budget

a report showing estimates of what revenues and costs should have been, given the ACTUAL level of activity for the period

value chain

a value chain includes activities ranging from development to production to after-sales service

An event that causes the consumption of manufacturing overhead resources is referred to as a(n) ________.

activity.

An incremental cost is

adding ONE MORE

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

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.

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

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.

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.

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

Managers may choose to retain an unprofitable product line because it

attracts customers it helps to sell other products

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

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.

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

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(n) _____ translates company objectives into financial terms

budget

Management's detailed plans for the future are often expressed formally in a(n)

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

_____ _____ 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

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

A series of steps followed to carry out a business task that can span departmental boundaries is a:

business process

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

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

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

_____ _____ is the financial budget that provides info about budgeted cash receipts and payments

cash budget

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

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

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

_____ budgeting gives managers a constant period of budgets available and keeps them in a continuous planning mode instead of only once per period

continuous

a 12 month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed

continuous or perpetual budget

The reason we focus on _____ _____ is that fixed costs will not change in the short run

contribution margin

To calculate the degree of operating leverage, divide ______ ________ by net operating income.

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 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

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.

sunk cost

cost that has already been incurred and cannot be avoided regardless of what a manager decides to do

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

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

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

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

In cost-plus pricing, the markup consists of:

desired ROI.

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.

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 work of factory employees that can be physically and directly associated with converting raw materials into finished goods is:

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

Manufacturing costs include:

direct materials, direct labor, and manufacturing overhead.

The 3 sections of the cash budget are _____, _____, and financing

disbursements, receipts

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

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

Companies should provide _________ and human rights advocates with greenhouse gas emissions data, child labor transparency, and recycling and resource conservation data.

environmental

Type of costs that might be included in a cost pool based on order size include:

equipment depreciation and factory supplies.

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

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

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.

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.

For a cost to be relevant it must be a _____ cost that differs between decision alternatives

future

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.

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

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

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.

Manufacturing Overhead

includes all manufacturing costs except direct materials and direct labor.

The budgeted _____ _____ shows a company's planned profit

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

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

Make or buy decisions are also referred to as _____ vs. _____ decisions

insourcing, outsourcing

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

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

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

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.

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

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

_____ _____ _____ 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

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

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

The _____ _____ budget shows all costs of production other than direct materials and direct labor

manufacturing overhead

_____ _____ _____ budget that estimates the manufacturing overhead costs needed to support budgeted production

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 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

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

The _____ _____ is a set of interrelated budgets that constitutes a plan of action for a specific period

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

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.

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

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.

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

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

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.

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

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

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.

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.

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.

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

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

_____ _____ 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

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

_____ involves developing goals and objectives for the future

planning

_____ 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 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

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.

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 raw materials purchases, direct labor and manufacturing overhead budgets are all based on the ____ budget

production

Once the _____ _____ has been prepared, the raw materials purchases, the direct labor, and the manufacturing overhead budgets can be prepared

production budget

_____ _____ budget that shows how many units need to be produced each period

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

A flexible budget:

projects budget data for various levels of activity.

linear programming

quantitative method to find the proper combination or mix of products

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

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.

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

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

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)

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.

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'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%

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

What is the receivables turnover for this company?

3.4 times.

Which step in the management decision making process: make the decision based on the info gathered in the previous step

4

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

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

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

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

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%

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

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

how much cost savings when moving manufacturing operations oversea?

80%

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)

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

Which of the following could be a constrained resource? A. machine hours B. direct materials C. factory space D. all of the above

D

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)

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

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.

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

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

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

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

Variable Overhead Efficiency Variance =

SR x AH-SH

The machine or process that is limiting overall outputs is called a(n)

Bottleneck

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 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.

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

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

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

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

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 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

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

Relevant Cost

Cost and benefits that differ in total between two alternatives

In activity based costing another term for activity measure is:

Cost driver

Which of the following might be included in a customer relations cost pool?

Cost of sales calls and customer entertainment.

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

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.

Total cost of a job =

Direct Material + Direct Labor + Applied MOH

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

Predetermined Overhead Rate =

Estimated total Manufacturing Overhead Cost / Estimated total amount of the allocation base

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: CVP analysis investigates company personnel polices, business values, and performance measures for a specific company.

False

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

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.

Which is the last step in developing the master budget?

Preparing the budgeted balance sheet.

Designing and advertising a product are all __-level activities

Product

In ABC, ____ are different from those calculated using traditional costing

Product margins

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

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

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

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

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

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

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

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

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

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.

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)

In developing a flexible budget within a relevant range of activity:

it is necessary to relate variable cost data to the activity index chosen.

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

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.

Using a _____ _____, when one budget period passes, another is automatically added at the end

rolling budget

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

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

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

individual customer __ minus individual customer __ equals customer margin.

sales costs

______ _____ 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 calculation to determine target cost is:

sales price-desired profit.

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.

Deciding what to do with a joint product at the split-off point is a(n) _________ or __________ __________ decision.

sell or process further