CQ6 (CH12 & 16)

In a make or buy decision, management should consider all of the following except a) Opportunity costs of making internally b) Costs that are avoidable by buying outside the company c) Costs common to making internally or buying outside the company d) Other qualitative factors

Costs common to making internally or buying outside the company

A cost is considered relevant if: a) if it can't be changed. b) it is positive. c) it makes a difference. d) it is sunk.

It makes a difference

The contribution margin income statement:

Reports expenses based upon cost behavior pattern rather than cost function

Contribution margin can be expressed as:

Sales minus variable expenses

Which of the following is another term for mixed costs? a) Component costs. b) None of these. c) Semifixed costs. d) Semivariable costs.

Semivariable costs

Which of the following qualitative factors favors the buy option in the make or buy decision? a) Ability to control quality b) Technical expertise of supplier c) Utilization of idle capacity d) Production scheduling

Technical expertise of supplier

If the percentage change in operating income resulting from a given percentage change in sales is HIGHER than the percentage change in sales itself, then a) An increase in the selling price would not alter the contribution margin per unit b) Variable costs per unit have increased c) Variable costs have decreased in total d) The company has operating leverage e) The company has no fixed costs

The company has operating leverage

Knowledge about the behavior pattern of a cost is important to understanding the effect on the net income of a change in sales volume because as sales volume changes:

The effect on net income will depend on the behavior pattern of various costs

A sunk cost is a cost that: a) has been incurred and cannot be eliminated. b) is never relevant in decision-making. c) is never a differential cost. d) all of these.

all of these

In a make or buy decision, which of the following costs would be considered relevant? a) sunk costs. b) unavoidable costs. c) avoidable costs. d) allocated costs.

avoidable costs.

Which of the following is the correct calculation for the contribution margin ratio? a) revenue divided by variable costs b) revenue divided by contribution margin c) contribution margin divided by variable costs d) contribution margin divided by fixed costs e) contribution margin divided by revenue

contribution margin divided by revenue

The decision for solving production mix problems involving multiple products and scarce production resources should focus on: a) sales price of each product. b) gross profit of each product. c) contribution margin per unit of scarce resource. d) contribution margin of each product.

contribution margin per unit of scarce resource.

At the break-even point: a) fixed cost is always less than the contribution margin b) fixed cost is always equal to the contribution margin c) fixed cost is always more than the contribution margin d) fixed cost is always more than the variable cost e) fixed cost is always equal to the variable cost

fixed cost is always equal to the contribution margin

Expressing fixed costs on a per unit basis of activity is misleading because: a) fixed cost per unit increase as activity increases. b) fixed cost per unit decrease as activity increases. c) total fixed costs decrease as activity decreases. d) total fixed costs increase as activity increases

fixed cost per unit decrease as activity increases.

As the level of activity increases:*** a) variable cost per unit increases b) fixed cost per unit decreases c) variable cost per unit decreases d) fixed cost per unit increases

fixed cost per unit decrease.****

An example of a cost that is likely to have a variable behavior pattern is: a) salaries of production supervisors b) sales force salaries c) production labor wages d) depreciation of production equipment

production labor wages

Simplifying assumptions made when using cost behavior pattern data include: a) activity range and variability. b) relevant range and linearity. c) fixed activity and linearity. d) relevant range and liquidity.

relevant range and linearity

When a cost formula is used to describe a mixed (semi-variable) cost behavior pattern, total costs are expected to increase and per unit costs are expected to: a) decrease as the level of activity decreases. b) decrease as the level of activity increases. c) remain constant as the level of activity increases. d) increase as the level of activity increases.

remain constant as the level of activity increases

ABU Co. has several products, each with a different contribution margin ratio. If the same number of units were sold in July as in June, but the sales mix changed: a) operating income would be the same in June and July. b) total contribution margin in July would be different from that in June. c) the company's overall contribution margin ratio would be the same in June and July. d) fixed expenses in July would be in a different relevant range than in June.

total contribution margin in July would be different from that in June

Which of the following costs are not relevant in a decision to continue or discontinue a segment of the organization? a) avoidable costs b) unavoidable costs c) opportunity costs d) differential costs

unavoidable costs

Managerial accounting, as compared to financial accounting: a) places a great deal of emphasis on historical transactions. b) focuses on information prepared for the investors and creditors. c) must conform to GAAP. d) uses frequent and prompt control reports.

uses frequent and prompt control reports.

Relevant costs in decision-making: a) are future costs that represent differences between decision alternatives. b) result from past decisions. c) None of these. d) should not influence the decision. (WRONG)

Are future costs that represent differences between decision alternatives

The payback method attempts to measure a) How soon an investment is recovered b) The net cash inflow from an investment c) The estimated life of an investment the ROI of an investment

How soon an investment is recovered

If both the fixed costs associated with a product and the variable costs (as a percentage of sales dollars) decrease, what will be the effect on the contribution margin ratio and the break-even point, respectively? a) Decrease, increase b) Increase, decrease c) Decrease, decrease d) Increase, increase

Increase, decrease

Performance analysis in the planning and control cycle relates to the act of: a) managing. b) controlling. c) revising plans. d) planning.

controlling

When the high-low method of estimating a cost behavior pattern is used: a) the highest and lowest sales price and volume amounts are used in the calculation. b) the resulting cost formula will explain total cost accurately for every value between the high and low volumes. c) cost and volume data must be reviewed for outliers. d) the direct result of the high-low calculations is the fixed expense amount.

cost and volume data must be reviewed for outliers.

The contribution margin format income statement is organized by: a) Cost behavior classifications b) Sales territories c) Functional classifications d) Responsibility centers

cost behavior classifications

Cost behavior refers to: a) costs that are variable or fixed. b) costs that are both good and bad. c) costs that increase at a quicker rate than others. d) costs that decrease at a quicker rate than others e) one of these.

costs that are variable or fixed.

________ costs between two alternative projects are those that would result from selecting one alternative instead of the other: a) Differential b) Allocated c) Sunk d) Irrelevant

differential

Managerial accounting, as opposed to financial accounting, is primarily concerned with: a) the financial condition of the organization as a whole b) meeting the requirements of generally accepted accounting principles c) emphasizing the future d) providing data for investors and creditors e) determining exact results

emphasizing the future

Opportunity costs are a) foregone benefits. b) included in inventory. c) included in cost of goods sold. d) sunk costs.

forgone benefits

When the firm's activity requires it to operate at a level above the upper boundary of the relevant range, fixed expenses are likely to: a) increase b) be eliminated c) decrease d) remain the same

increase

Which of the following will increase a company's break-even point?

increasing variable cost per unit

The decision to continue or discontinue a segment of the business should focus on: a) sales minus total variable expenses and total fixed expenses. b) sales minus total variable expenses and avoidable fixed expenses of the segment. c) sales minus total variable expenses and allocated fixed expenses of the business. d) none of the above.

sales minus total variable expenses and avoidable fixed expenses of the segment.

Contribution margin can be expressed as: a) sales minus variable expenses b) sales minus cost of goods sold c) sales minus fixed expenses d) the level of sales required to cover variable expenses e) the level of sales required to cover fixed and variable expenses

sales minus variable expenses

A management decision that would have a long term influence on the operating leverage of a firm would be: a) increasing the advertising budget. b) having a season-end sale of seasonal products. c) substituting robots for hourly paid production workers. d) increasing prices in proportion to raw material cost increases.

substituting robots for hourly paid production workers.

An example of a cost likely to have a mixed behavior pattern is: a) electricity cost for the manufacturing plant. b) raw material cost. c) sales force commission. d) depreciation of production equipment.

Electricity cost of the manufacturing plant

As the level of activity increase: a) variable cost per unit decrease. b) fixed cost remains constant in total. c) variable cost remains constant in total. d) fixed cost per unit decrease.

Fixed cost remains constant in total

An income statement organized by cost behavior does not include: a) Revenues b) Gross profit c) Operating income d) Contribution margin

Gross profit

Which of the following will increase a company's break-even point? a) Increasing variable cost per unit b) Decreasing variable cost per unit c) Reducing total fixed costs d) Increasing selling price per unit e) Increasing contribution margin per unit

Increasing variable cost per unit

The method of evaluating financial data that change under different courses of action is called: a) Incremental analysis b) financial statement analysis c) cost-benefit analysis d) break-even analysis

Incremental analysis

A sunk cost is a cost that a) Is always relevant in decision making b) Can be relevant in decision making depending on the circumstances c) Is never relevant in decision making d) Can be recovered in the future e) None of the above

Is never relevant in decision making

Which of the following statements does not describe a characteristic of management accounting? a) Approximate amounts rather than accurate amounts or refined estimates are often used in management accounting. b) Management accounting places a great deal of emphasis on the future. c) Management accounting must conform to GAAP. d) Management accounting is more concerned with units of the organization rather than with the organization as a whole

Management accounting must conform to GAAP

The concept of operating leverage refers to which of the following? a) Operating income changes proportionately more than revenues for any given change in activity level. b) Operating income changes proportionately more than income for any given change in activity level. c) Operating income changes proportionately less than income for any given change in activity level. d) Operating income changes proportionately less than revenues for any given change in activity level

Operating income changes proportionately more than revenues for any given change in activity level.

To which function of management is CVP analysis most applicable? a) Organizing b) Controlling c) Directing d) Planning

Planning

Activities included in a generally accepted definition of management accounting include:

Planning, organizing, controlling

Managerial accounting, as opposed to financial accounting, is primarily concerned with: a) Providing information to investors and creditors b) Preparing the current balance sheet of the company c) Present and future planning and control d) Historical results of operations

Present and future planning and control

Cost volume-profit analysis assumes fixed costs:

Remains constant as activity changes

The relevant range concept refers to: a) a firm's range of profitability. b) a firm's range of sales. c) a firm's range of activity. d) a firm's range of rates of return

a firm's range of activity.

An example of a cost likely to have a fixed behavior pattern is: a) electricity cost for packaging equipment. b) sales force commission. c) production labor wages. d) advertising cost.

advertising cost

Which of the following terms do not appear on the contribution margin format income statement a) contribution margin. b) gross profit. c) variable expenses. d) operating income.

gross profit

The scattergram allows cost-volume relationships to be visually scanned for outlier observations that should be: a) included in the calculation of the cost formula of a mixed cost. b) included in the calculation of the variable rate component of the mixed cost. c) included in the calculation of the fixed cost component of the mixed cost. d) ignored in the calculation of the cost formula of a mixed cost.

ignored in the calculation of the cost formula of a mixed cost.

The decision to continue or discontinue a segment of the business should focus on: sales minus total variable expenses and total fixed expenses. sales minus total variable expenses and avoidable fixed expenses of the segment. sales minus total variable expenses and allocated fixed expenses of the business. none of the above.

sales minus total variable expenses and avoidable fixed expenses of the segment.

Which of the following cost classifications would not be considered relevant in comparing decision alternatives? a) Differential cost b) None of these c) Opportunity costs d) Sunk Cost

sunk cost

A(n) _____________ is the minimum cost that can be incurred, which when subtracted from the selling price, allows for a desired profit to be earned. a) relevant cost b) opportunity cost c) incremental cost d) target cost

target cost

Knowledge about the behavior pattern of a cost is important to understanding the effect on net income of a change in sales volume because as sales volume changes: a) fixed costs will rise proportionately. b) net income will change proportionately. c) variable costs will not change. d) the effect on net income will depend on the behavior pattern of various costs.

the effect on net income will depend on the behavior pattern of various costs

Managerial accounting can best be described as: a) the preparation and distribution of the corporate tax return. b) the preparation and use of accounting information within the organization. c) the preparation and distribution of the financial statements. d) meeting the requirements of generally accepted accounting principles.

the preparation and use of accounting information within the organization

The term "relevant range" refers to a) the range of activity where total variable cost remains constant as activity changes. b) the range of activity where costs will fluctuate. c) the range of activity where cost relationships are valid. d) the range of activity where fixed costs change as activity changes.

the range of activity where cost relationships are valid.

As the total volume of activity changes: a) fixed costs per unit stay the same. b) the total of fixed costs changes. c) the total of variable costs changes. d) variable costs per unit change.

the total of variable costs changes

Which of the following is the correct calculation for the contribution margin ratio? a) Contribution margin divided by variable costs. b) Sales revenue divided by variable costs. c) Sales revenue divided by contribution margin. d) Contribution margin divided by sales revenue.

Contribution margin divided by sales revenue

Each of a company's two product lines has a different contribution margin ratio. If the company's total sales remain the same but the sales mix shifts toward selling more of the product with the higher contribution ratio, which of the following is true? a) The average contribution margin ratio will increase. b) The break-even point will decrease. c) Operating income will increase. d) All of these are true.

All of these (average contribution margin ratio will increase, operating income will increase, break-even point will decrease)

The kind of standard that is most useful for planning and control is:

An attainable standard

A standard cost or production standard that is achievable under actual operating conditions is called a(n): a) Attainable standard b) Ideal standard c) Past experience standard d) Average standard

Attainable standard

The contribution margin format income statement: a) is most frequently used for financial statement reporting purposes. b) uses a behavior pattern classification for costs rather than a functional cost classification approach. c) results in a larger amount of operating income than the traditional income statement format. d) emphasizes that all costs change in proportion to any change in revenues.

Uses a behavior pattern classification for costs rather than a functional classification approach