Managerial Acct. Exam 2 (True or False)

Product-level activities relate to how many batches are run or units of product are made

False

A benefit of self-imposed budgeting is that it may allow lower-level managers to create budgetary slack.

False

A common fixed cost is 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.

False

The practice of assigning the costs of idle capacity to products results in more stable unit product costs.

False

The standard cost per unit is computed by dividing the standard quantity or hours by the standard price or rate.

False

The standard price per unit for direct materials should not include the cost of delivering the materials

False

The variable overhead efficiency variance measures how efficiently variable manufacturing overhead resources were used.

False

Under absorption costing, fixed manufacturing overhead cost is not included in product cost

False

A direct materials quantity standard generally includes an allowance for waste

True

A favorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period.

True

A materials price variance is unfavorable if the actual price exceeds the standard price.

True

A self-imposed budget is a budget that is prepared with the full cooperation and participation of managers at all levels.

True

A transaction driver provides a measure of the amount of time required to perform an activity

True

Activity-based costing involves a two-stage allocation in which overhead costs are first assigned to departments and then to jobs.

True

A quantity standard indicates how much output should have been produced.

False

Activity rates are computed in the second-stage allocation in activity-based costing.

False

A common fixed cost is a fixed cost that supports more than one business segment and is traceable in whole or in part to at least one of the business segments.

False

A continuous or perpetual budget is a budget that almost never needs to be revised.

False

Activity rates in activity-based costing are computed by dividing costs from the second-stage allocations by the activity measure for each activity cost pool.

False

Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs.

False

Activity-based management seeks to eliminate waste by allocating costs to products that waste resources.

False

Assuming the LIFO inventory flow assumption, if production is less than sales for the period, absorption costing net operating income will generally be greater than variable costing net operating income.

False

Batch-level activities are performed each time a unit is produced.

False

Because absorption costing emphasizes costs by behavior, it works well with cost-volume-profit analysis.

False

Both variable and fixed manufacturing overhead costs are included in the selling and administrative expense budget.

False

Common fixed expenses should be allocated to business segments when performing break-even calculations and making decisions.

False

Direct labor-hours or direct labor cost should not be used as a measure of activity in an activity-based costing system.

False

Direct materials are considered to be a product cost under variable costing but not absorption costing.

False

If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost should not be considered a common cost.

False

In a merchandising company, the required merchandise purchases for a period are determined by subtracting the desired ending inventory from the sum of the units to be sold during the period and the units in beginning inventory.

False

In activity-based costing, nonmanufacturing costs are not assigned to products.

False

In activity-based costing, organization-sustaining costs should be included in product costs for internal management reports that are used for decision-making.

False

In business, a budget is a method for putting a limit on spending.

False

In traditional costing systems, manufacturing costs that are not caused by products are not assigned to products.

False

In traditional costing, some manufacturing costs may be excluded from product costs

False

One disadvantage of a self-imposed budget is that budget estimates prepared by front-line managers are often less accurate and reliable than estimates prepared by top managers.

False

Only variable manufacturing overhead costs are included in the manufacturing overhead budget.

False

Organization-sustaining overhead costs should be allocated to products just like unit-level and product-level activities.

False

Planning involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change

False

The basic idea underlying responsibility accounting is that each manager should be held responsible for the overall profit of the company to ensure that all managers are acting together.

False

The budgeted selling and administrative expense is calculated by multiplying the budgeted unit sales by the selling and administrative expense per unit.

False

The cash budget is typically prepared before the direct materials budget

False

The cash budget is usually prepared after the budgeted income statement.

False

The costs of activities that are classified as unit-level should be fixed respect to the number of units produced.

False

The costs of idle capacity should be assigned to products in activity-based costing.

False

The direct labor budget shows the direct labor-hours required to produce the desired ending inventory.

False

The direct materials budget is typically prepared before the production budget.

False

The first budget a company prepares in a master budget is the production budget

False

The manufacturing overhead budget is typically prepared before the production budget

False

The manufacturing overhead budget lists all costs of production other than selling and administrative expenses

False

The number of units to be produced in a period can be determined by adding the expected sales to the beginning inventory and then deducting the desired ending inventory.

False

Under conventional absorption costing, the fixed costs associated with idle production capacity are not included as part of the product cost

False

Under variable costing, variable production costs are not treated as product costs.

False

When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system with batch-level and product-level costs, the unit product costs of low volume products typically decrease whereas the unit product costs of high volume products typically increase.

False

When the number of units in work in process and finished goods inventories decrease, absorption costing net operating income will typically be greater than variable costing net operating income.

False

When using segmented income statements, the dollar sales for a segment to break even equals the common fixed expenses of the segment divided by the segment CM ratio

False

When viewed over the long term, cumulative net operating income will be the same for variable and absorption costing if ending inventories exceeds beginning inventories.

False

Activity-based costing uses a number of activity cost pools, each of which may have a different allocation base.

True

An unfavorable labor rate variance can occur if workers with high hourly wage rates are assigned to work on products with standards that assume workers have low hourly wage rates.

True

Assuming the LIFO inventory flow assumption, if production equals sales for the period, absorption costing and variable costing will produce the same net operating income.

True

Budgets are used to plan and to control operations.

True

Common fixed costs should not be charged to the individual segments when preparing a segmented income statement.

True

If a company operates at the break even point for each of its segments, it will lose money overall if common fixed expenses exist

True

In activity-based costing, some manufacturing costs can be excluded from product costs

True

In companies that do not have "no lay-off" policies, the total direct labor cost for a budget period is computed by multiplying the total direct labor hours needed to make the budgeted output of completed units by the direct labor wage rate.

True

In general, duration drivers are more accurate measures of the consumption of resources than transaction drivers.

True

Net operating income is affected by the number of units produced when absorption costing is used.

True

On a cash budget, the total amount of budgeted cash payments for manufacturing overhead should not include any amounts for depreciation on factory equipment.

True

Purchase of poor quality materials may cause a favorable materials price variance and an unfavorable labor efficiency variance.

True

Segment margin is a better measure of the long-run profitability of a segment than contribution margin.

True

Self-imposed budgets prepared by lower-level managers should be scrutinized by higher levels of management.

True

The costs assigned to units in inventory are typically lower under variable costing than under absorption costing.

True

The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to activity cost pools.

True

The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials purchased.

True

The sales budget is usually prepared before the production budget.

True

The sales budget often includes a schedule of expected cash collections

True

The standard labor rate per hour defines the company's expected direct labor wage rate per hour, including employment taxes and fringe benefits.

True

Under absorption costing, fixed manufacturing overhead is treated as a product cost.

True

Under absorption costing, it is possible to defer a portion of the fixed manufacturing overhead costs of the current period to future periods through the inventory account.

True

Under absorption costing, the profit for a period is affected by a change in the number of units of finished goods in inventory.

True

Under variable costing, fixed manufacturing overhead cost is not treated as a product cost.

True

Under variable costing, product cost does not contain any fixed manufacturing overhead cost

True

Under variable costing, product costs consist of direct materials, direct labor, and variable manufacturing overhead.

True

Waste on the production line will result in an unfavorable materials quantity variance

True

When preparing a direct materials budget, the units of raw material needed to meet production should be added to desired ending inventory and the beginning inventory for raw materials should be subtracted to determine the amount of raw materials to be purchased.

True

When using segmented income statements, the dollar sales for a company to break even equals the sum of the traceable fixed expenses and the common fixed expenses divided by the overall CM ratio

True

When variable costing is used, and if selling prices exceed variable expenses and if the unit contribution margins, the sales mix, and fixed costs remain the same, profits move in the same direction as sales.

True