ACC320 EXAM 1
A company purchased a 12 month insurance policy on October 1 for $1,200. On the December 31 annual financial statements, ____
$300 is reported as a expense and $900 is reported as an asset
Which of the following are most likely fixed costs?
Administrative salaries Factory rent Factory insurance
Which of the following would not be considered a direct labor cost in a service firm that uses job-order costing?
The salary of the manager at a hair salon
Variable costs vary ______ within the relevant range of activity.
in total
As the level of activity moves outside of the relevant range, fixed costs, ______.
increase or decrease in discrete steps
The elapsed time from when inventory is received from suppliers to when cash is received from customers is measured by the ______.
operating cycle
A times interest earned ratio of less than________- is inadequate because interest expense exceeds the earnings that are available for paying that interest.
1
Why do companies use a predetermined overhead rate rather than an actual overhead rate?
An actual overhead rate is not known until the end of the period.
Which of the following is only true in a multiple predetermined overhead rate system?
Each production department may have its own predetermined overhead rate.
Which of the following would be considered direct materials in a service firm that uses job-order costing?
Paperwork at a law firm
Which of the following statements are true?
Period costs are expensed in the same period in which they are incurred. Sales commissions are period costs.
Which of the following statements are true?
Period costs are expensed when incurred. Period costs do not flow through the inventory accounts.
Cost-plus pricing occurs when ______.
a markup percentage is added to the cost of a job
All manufacturing costs are assigned to units of product and all nonmanufacturing costs are treated as period cost under
absorption costing
Dividing sales on account (credit sales) by the average accounts receivable balance for the year is the calculation of the ____________________ turnover.
accounts receivable
asset turnover can be increased by increasing
accumulated depreciation, sales
Which of the following measures excludes inventories and prepaid expenses from total current assets, leaving only the more liquid assets to be divided by current liabilities?
acid-test ratio
When a company creates overhead rates based on the actions it performs, it is employing an approach called
activity based costing
differential costs
also known as incremental cost the difference in cost between two alternatives
Only indirect costs associated with operating the factory
are included in manufacturing overhead.
indirect labor costs include
assembly-line supervisor salary factory security guard wages
on a common-size balance sheet, items are usually expressed as a percentage of total
assets
An essential quality of an overhead allocation base is that it must ______.
be common to all the company's products and services
How individual costs react to changes in activity level is referred to as cost
behavior
The type and quantity of each type of direct material needed to complete a unit of product is listed on the ______.
bill of materials
The amount that would be distributed to holders of each share of common stock if all assets were sold at their balance sheet carrying amounts and if all creditors were paid off is the __________ per share
book value
Costs assigned to units of product in absorption costing include ______ manufacturing costs.
both variable and fixed
The difference between direct labor and indirect labor is that direct labor ______.
can be easily traced to jobs, while indirect labor cannot
cost behavior
categorizes costs as fixed, mixed and variable refers to how a cost will change as activity level changes
In a horizontal analysis, dollar changes highlight ______.
changes that are most important economically
Fixed costs that cannot easily be changed and often lock a company into a multi-year decision are called_________ fixed costs.
committed
A vertical analysis in which each financial statement item is expressed as a percentage is a ? size financial statement
common
Analytical techniques that are widely used when comparing financial statements are ______
common-size statements dollar and percentage changes on statements ratios
Manufacturing overhead costs ______.
consist of many different items are indirect costs
sales revenue-variable expenses equals
contribution margin
A factor that causes overhead costs is called a ______.
cost driver
An allocation base should be ______.
cost driver
Any item for which cost data is desired is called
cost object
Within the relevant range of activity ______.
costs and activity can be approximated by a straight line fixed costs remain constant in total
when analyzing a company, in addition to financial ratio, managers should consider
customer satisfaction, employee learning and growth, and industry trends
Cost objects include ______.
customers anything for which cost data is desired organizational subunits
Which of the following ratios measures the balance between a company's liabilities and stockholders' equity?
debt-to-equity
Differential costs, opportunity costs and sunk costs are all cost classifications used in ______.
decision making
The adjustment for overapplied overhead ______ net income.
decreases cost of goods sold and increases
When a company uses a departmental approach rather than a plantwide approach to applying overhead, the selling price of the product will always be ______.
different
Costs that can be easily and conveniently traced to a specific product are called ______ costs.
direct
Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) ______ cost of the customer placing the order.
direct
Labor costs that are easily traced to a job are called_________ labor costs.
direct
Materials that become an important component of the finished product whose cost can be easily and conveniently traced to the finished product are________ materials
direct
In an automobile manufacturing plant, the assembly-line workers are classified as _______ cost
direct labor
A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost.
direct material
prime costs include
direct materials and labor
The total cost of a job includes ______.
direct materials cost applied manufacturing overhead direct labor cost
selling and administrative costs are
direct or indirect costs
A cost that can be easily and conveniently traced to a specific cost object is a(n)______________ cost of that cost object, whereas costs that cannot be easily and conveniently traced to that specific cost object are________ costs
direct,indirect
Fixed costs that can be cut-back or eliminated without significant damage to a company's long-term goals are________ fixed cost and__________ fixed costs can not be easily changed or eliminated.
discretionary, committed
Which ratio quantifies the percentage of current earnings being paid out in dividends?
dividend payout ratio
Given the potential benefits of maintaining positive financial leverage, managers ______.
do not try to avoid debt
Because investors buy stock in hopes of a return in the form of either dividends or future increases in stock value, they have an interest in the company's
earnings per share
The appeal of using predetermined departmental overhead rates is they presumably provide ______.
enhanced information for decision making a more accurate accounting of costs
To calculate a predetermined overhead rate, divide estimated total manufacturing overhead by the ______.
estimated total allocation base
The formula for a predetermined overhead rate is ______.
estimated total manufacturing overhead cost ÷ estimated total allocation base
A predetermined overhead rate is calculated by dividing the ______ total manufacturing overhead by the ______ total allocation base.
estimated; estimated
examples of performing financial statement analysis include
examining trends in key financial data comparing financial data across companies analyzing financial ratios to assess the financial health of a company
administrative costs include
executive compensation and public relations costs
if a company's rate of return on total assets is less than the rate of return the company pays its creditors
financial leverage would be negative
Within the relevant range of activity, ______ costs remain constant in total.
fixed
managers use financial statement analysis to
get feedback regarding the performance of the company benchmark performance against competitors better understand how investors and creditors will view the company's financial results
When investors are willing to pay a premium for the company's stock, the price-earnings ratio is _______, whereas when investors believe a company's future earnings growth is limited, the price-earnings ratio is_______
high, low
In a system that uses multiple predetermined overhead rates, overhead is applied ______.
in each department as jobs proceed through the department
A fixed cost remains fixed ______ within the relevant range of activity.
in total
Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the ______.
income statement
The adjustment for underapplied overhead ______ net income.
increases cost of goods sold and decreases
The difference in revenues between two alternatives is called ______.
incremental revenue
Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs.
indirect
Manufacturing overhead costs include ______.
indirect materials, factory supervisors' salaries, and factory depreciation
Analysts should also evaluate
industry trends, technological changes, changes in consumer tastes, changes in broad economic factors, and changes within the company itself.
product costs are also called
inventoriable costs
how many times a company's inventory has been sold and replaced during the year is measured by the
inventory turnover
One reason to use a predetermined overhead rate
is to eliminate the effect of seasonal factors.
if the average collection period for a company is calculated to be 35 days, then on average
it takes 35 days to collect a credit sale
The document that records the materials, labor, and manufacturing overhead costs charged to a job is the ______.
job cost sheet
Companies that make many different products each period use
job-order
The components of prime costs are direct __________costs and direct ___________costs
labor, materials
borrowing money to acquire assets in an effort to increase sales and profits is financial
leverage
how quickly an asset can be converted into cash is known as
liquidity
A company with an excellent prospect of profitable growth, usually pays out ______ dividends.
little or no
Widely used allocation bases in manufacturing include ______.
machine hours direct labor cost units of product direct labor hours
discretionary fixed costs include
management training programs and advertising
Direct materials and direct labor are both ______ costs.
manufacturing
Indirect materials and indirect labor are classified as ______.
manufacturing overhead
manufacturing costs include
manufacturing overhead, direct labor, direct materials
The cost of producing one more unit is the ______ cost.
marginal
The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is recognized is known as the___________ principle.
matching
Direct materials costs are recorded on the job cost sheet when the ______.
materials are issued to the job
Manufacturing costs can be divided into three categories: direct __________, labor and manufacturing _________
materials, direct, overhead
an allocation base is
measure of activity used to assign overhead costs to products and services
dividend yield ratio
measures rate of return (form cash dividends only) earned by an investor who buys common stock at current market price
Compared to a plantwide overhead rate system, a multiple predetermined overhead rate system is ______ accurate.
more complex and more
indirect materials include
nails,glue, and thread
way to compute earnings per share
net income/average number of common shares outstanding
net income divided by sales
net profit margin percentage
average sale period + average collection period =
operating cycle
A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n)
opportunity cost
Cost objects include ______.
organizational subunits customers anything for which cost data is desired
The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find ______.
overhead applied to the job
Because investors buy stock in hopes of a return in the form of either dividends or future increases in stock value, they have an interest in the company's earnings
per share
When analysts use a company's financial information to make comparisons, three analytical techniques are widely used. They are dollar and________ changes on statements, ________ - size statements, and_________
percentage, common, ratios
the relationship between the market value of a share of stock and the stock's current earnings per share is often stated in terms of the - earnings ratio.
price
Direct materials, direct labor, and manufacturing overhead are all ______ costs.
product
On a traditional income statement, cost of goods sold reports the costs attached to merchandise sold during the period, while selling and administrative expenses report all costs that have been expensed as incurred.
product (manufacturing), period
Inventoriable costs is another term for
product cost
When analyzing the acid-test ratio, ideally each dollar of liabilities should be backed by at least $1 of _________ assets.
quick
The materials that go into the final product are called ______ materials.
raw
vertical analysis focuses on
relations among financial statement items at a given point in time
The assumption that cost behavior is strictly linear is reasonably valid within the of activity.
relevant range
reduction in inventory
result in decrease in company's current ratio
Which of the following is a measure of operating performance calculated as: {Net income + [Interest expense × (1 - Tax rate)]} ÷ Average total assets?
return on total assets
on a common-size income statement, each item is expressed as a percentage of
sales
Selling costs include
sales salaries, sales commissions, and advertising
When all of a company's job cost sheets are viewed collectively, they form what is known as a(n) ______.
subsidiary ledger
marginal cost
the cost incurred to produce one more unit of a product
composition of assets
the true basis for the adequacy of a current ratio
Period costs are always expensed on the income statement in the period in which ______.
they are incurred
the most common measure of a company's ability to protect its long-term creditors is the
times interest earned ratio
committed fixed costs include
top management salaries real estate taxes
The ratio that measures how efficiently company assets are being used to generate sales is the________ turnover ratio
total asset
the return on total ________ is a measure of operating performance
total assets
direct labor is also called
touch labor
An income statement focusing on product and period costs has been prepared using a(n) _______format, while a(n)_________ format income statement makes a distinction between fixed and variable costs
traditional,contribution
horizontal analysis is known as
trend analysis
Showing data for several years as a percentage of a base year computes ______.
trend percentages
current ratio
trick to interpret
A bill of materials contains the ______.
type of each direct material needed to complete a unit of product quantity of each direct material needed to complete a unit of product
it is difficult to compare financial data between two companies when each company
uses a different accounting method
an increasing equity multiplier means a company is
using more debt than equity to fund its assets
Cost of goods sold for a merchandising company, direct materials and commissions are all examples of ___________ costs.
variable
Allocation bases that do not drive overhead costs ______.
will not accurately measure the cost of overhead used
current assets-current liabilities
working capital
