Accounting 312 Final

Transfer price @ no excess capacity under general rule?

Market price

Responsibility accounting is the

process of tracing costs to the department in which the cost is incurred

How do you calculate contribution margin ratio?

CM Ratio = CM/Sales Revenue

What composes a conversion cost?

DL + MOH

What composes a prime cost?

DM + DL

How do you calculate BE point in sales $?

Fixed Expense/CM Ratio

ROI=

Income/Invest Capital OR Income/Revenue X Revenue/Invested Capital

Direct-Material Price Variance=

PQ(AP-SP)

Direct-Material Quantity Variance=

SP(AQ-SQ)

A particular product to which a cost is assigned is a

cost object

Sales Revenue - COGS =

gross margin

A visible social environmental cost is

known and clearly identified as an environmental issue

The throughput time required per unit is called the

manufacturing cycle time

Under variable costing

-variable MOH is a product cost -fixed MOH is a period cost

1. Carpool Inc. had sales of $400,000, variable costs of $200,000, and direct fixed costs totaling $100,000. The company's invested capital totals $800,000 and its required return (hurdle rate) is 10%. How much is the residual income? A. $120,000 B. $20,000 C. $80,000 D. $320,000

B. $20,000

Why is goal congruence important to an organization's success?

In order for the organization to be successful, the managers and employees throughout the organization must strive toward consistent goals -Establishing performance criteria by which each manager = measured

What is management by objective?

Management participation in setting their own goals to improve organizational performance

Profit Center

Organization subunit whose management is held accountable for the revenues generated less the costs incurred to generate those revenues

Direct Labor Efficiency Variance=

SR(AH-SH)

Deliver Cycle Time

The average time between the receipt of order and delivery of goods

Product Grade

The extent of a products capabilities in relation to other products with the same functional use

What is the significance of the fixed overhead volume variance?

The fixed overhead volume variance provides a way for reconciling the two different purposes of the standard costing system

Assigning both variable and fixed MOH to product costs is done when using

absorption costing

Emphasis on the determination of the causes of activities themselves is

activity analysis

Imputed interest rates are adjusted for different

levels of risk

Product costs are most likely to be distorted when using a

volume-based product costing system

1.A manufacturer develops budgets for the direct materials, direct labor, and overhead that will be required in the manufacturing process from which of the following?A. The selling and administrative expenses budget B. The budget for merchandise purchases C. The sales budget D. The production budget E. The cash budget

D. The production budget

JMG Corp has an opportunity to outsource production of Part 201. JMG has significant idle (excess) capacity in the plant that makes Part 201 and no alternate uses for the capacity. In the outsourcing decision, which of the following would be included as the opportunity cost of continuing to produce Part 201? A.total variable manufacturing cost B.total fixed manufacturing cost C.total semi-variable manufacturing cost D.total of all manufacturing costs E.none of the above

E.none of the above

Continuous and gradual cost reduction is the meaning of ______ costing.

Kaizen

Lag Indicators

Measures of the final outcomes of earlier decisions -Profit, cost flow, gross margin

Velocity

Number of units produced in a given time period

When are product costs expenses? When are period costs incurred?

Product costs -> COGS -> incurred in the period product is sold Period costs -> operational expense -> when cost = incurred

Equation approach to break even point:

Sales Revenue - VC - FC = Profit

Capital Turnover=

Sales Revenue/Invested Capital (#)

Generating CVP analysis many times with different combinations of estimates for sales volume, sales prices, variable expenses, and fixed expenses is called

Sensitivity Analysis

Manufacturing Cycle Time

Total Amount of production time required per unit

When an organization has variable overhead costs different from expected, after adjusting for the actual activity level of the overhead measure, the organization will have

a spending variance

A cash budget summarizes the company's

cash position

The visual linkage of a company's balanced scorecard elements and it's strategies and goals is called a

chain of cause and effect

One way to identify differences between products is to compare the _______ ratio of products for each activity cost pool

consumption

The amount by which a cost differs under alternative courses of action is a

differential cost

When standard allowed activity levels equal planned activity levels there will be no

fixed overhead volume variance

Another term for gross profit

gross margin

When assessing an organization's competitiveness, managers are concerned with

innovation, customer opinions, and financial viability

The costs of repairing defects prior to product delivery are __________ costs

internal failure

The process of speaking with a key employee in a support department to gather information about how time is spent is an example of

interviewing

The increase in labor efficiency over time is known as the

learning curve

Story boarding is the process of

placing key information about departmental activities on cards and organizing the cards into the activity sequence

Activities that are necessary to support entire product lines, but are not performed every time a new unit or batch is produced is a

product-sustaining level of activity

Traditional income statements

show the gross margin of a company

Volume-based costing is also called _____ based costing

throughput

When the analyst has no clear idea about the behavior of a cost item, it is helpful to us the ____-______ method to plot recent observations of the costs at various levels of activity.

visual-fit

3. ROI = 20% Sales margin = 5% Invested Capital = $10,000 What are Sales?

$40,000

How to calculate required before-tax NI given desired after-tax NI

(Target After-Tax NI)/(1-Tax Rate) = Before Tax NI

How is direct/indirect costing different than volume-based and ABC Costing?

-In traditional - only DM & DL = Direct costs -ABC Costing - any cost that can possibly be traced to a particular product = DC

How might income tax laws affect TP policies of multinational companies?

-Min income reported for divisions in countries w/ high income tax rates and get high income w/ low income tax rates 1)increase revenue in low-tax countries 2)increase cost in high tax countries 3)reduce COGS transferred to high import duty countries

Manufacturing Cycle Efficiency (MCE)

-Processing time/sum of: processing time, inspection time, waiting time, move time -value lies in its comparison between value-added time (processing) and non-value-added time (inspection, waiting, moving)

Why Contribution Margin IS over Traditional IS?

-Shows safety margin and B-E point -Separates expenses in VC and FC -Cuts out things you don't have control over -Makes CVP relationships more discernible

Steps in ABC costing:

1) Resource costs = assigned to ACTIVITIES* 2) MOH Costs = assigned to cost objects *Each activity has its own cost driver 1)ID Significant acts and assign MOH Costs to each activity in proportion 2)Assign MOH costs to different cost objects

Describe the decision making process:

1)Clarify decision problem 2)Specify the criterion 3)ID the alternatives 4)Develop a decision model 5)Collect the data 6)Make a decision* 7)Eval the performance *Qualitative considerations can sometime override quantitative factors

What are the different Responsibility Centers?

1)Cost Center -Segment has control over the incurrence of costs 2)Profit Center -Segment has control over both costs and revenues 3)Revenue Center -Segment is responsible for revenue of one unit 4)Investment Center -Segment has control over profits and invested capital

What is a critical value?

1)Critical value is set a multiple of the distribution's standard deviation 2)Critical value is determined by assuming cost variances have a normal probability distribution with a mean of zero 3)Variances more than critical value = investigated

Batch manufacturing processes:

1)High-volume product lines with both significant differences and significant similarities 2)Have characteristics of both job-order costing and process costing 3)requires the use of a hybrid product-costing system

Advantages of the contribution income statement for managers are the

1)Identification of variable costs 2)Focuses on CVP relationships

How can we improve ROI?

1)Increase Sales Prices 2)Decrease Expenses 3)Lower Invested Capital

The relevant range is the

1)Range of activity over which it is expected cost behavior patterns will remain constant 2)level of activity within which management expects the company to operate

The assumption that the behavior of total expenses is a straight-line over the relevant range implies that:

1)The variable cost per unit remains unchanged 2)Total revenue is a straight-line 3)Total fixed cost remain constant 4)The number of units produced equals the number of units sold

What are the four methods of establishing transfer prices?

1)Traditional Method 2)External Market Price 3)Set through negotiations 4)Cost-Based TP (includes allocated FOH)

Job order costing:

1)accumulates costs by each distinct batch of production 2)is used in the production of customer products 3)frequently used in service industries

16. Dorne Inc. is the leading supplier of desks in all of Hays County. They have provided the following information. 2018 Standards/Master Budget Information: Direct Material_Wood standard cost: $4.25 per linear foot Forecasted 2018 Production:3,350 desks 2018 Actual Information: 11,400 linear feet of wood costing $5.00 per linear foot was used in producing 2,680 desks 12,000 linear feet of wood were purchased @ $5.00 per linear foot 2018 Variances: DM-Price Variance = $8,550U DM-Total Variance = $17,050U The standard quantity of wood allowed per desk is ________ linear feet? (round to nearest cent) A. 3.51 B. 5.00 C. 6.23 D. 7.50 E. 8.23

A. 3.51 DM quantity variance= $17,050U -8,550U= $8,500U If the quantity variance is $8,500 U and the Projected value is $48,450 (11,400 x $4.25) then the Standard column must equal $39,950. $39,950/$4.25/2680 = 3.51linear feet per desk

20.The variable costs in a Selling, General and Administrative Costs Budget are most likely to be derived from which of the following budgets that we studied: A. Sales Budget B. Production Budget C. Direct Materials Budget D. Direct Labor Budget E. Variable Expenses Budget

A. Sales Budget

22.Khaki Corporation has the following budgeted sales data: January February March April Cash Sales $70,000 $90,000 $80,000 $70,000 Credit Sales $400,000 $350,000 $300,000 $320,000 The regular pattern of collection of credit sales is 40% in the month of sale, 50% in the month following sale, and the remainder in the second month following the month of sale. There are no bad debts. The budgeted accounts receivable balance on February 28 would be: A.$250,000 B.$210,000 C.$175,000 D.$215,000 E.$300,000

A.$250,000 Uncollected Jan credit sales (.1×400,000) $ 40,000 Uncollected Feb credit sales(.6×350,000)$210,000 Accs rec at the end of Feb $250,000

11.Which of the following is notone of the defining elements that are common to all cost allocations?A.Contribution margin B.Cost pools C.Cost drivers D.Denominator volume E.All of the above are defining elements that are common to all cost allocations

A.Contribution margin

For each of the following cost pools and its corresponding cost driver, indicate the level of the hierarchy of costs that applies: (2 points) Level of Cost Pool Cost Driver Cost Hierarchy Production line setups Number of Setups A Machine processing Machine Hours B

A=Batch-Level B=Unit-Level

The purpose of an activity dictionary is to provide a list of

ABC terminology for consistent usage

Direct Labor Rate Variance=

AH(AR-SR)

General Transfer Pricing Rule

Additional Outlay Cost/unit incurred + opp cost* *if no excess capacity Transfer Price = VC + CM (loss of selling to outsider) -Fixed Cost not included

Economic Value Added=

After-Tax Operating Income - Investment Charge Investment Charge=(Total A-Current L)WACC

What does the accuracy of the entire budgeting process depend on?

An accurate Sales Budget

What is a segmented income statement?

An income statement that shows income for major subunits and for the entire organization

7. TC Corporation has an after-tax operating income of $3,200,000 and a 9% weighted-average cost of capital. Assets total $7,000,000 and current liabilities total $1,800,000. On the basis of this information, TC Corporation's economic value added is: A. $2,408,000. B. $2,732,000. C. $3,668,000. D. $3,992,000. E. some other amount.

B. $2,732,000. Investment center's after-tax operating income $3,200,000 Less: Investment Charge* $468,000 = Economic Value Added $2,732,000 *Investment Charge Investment center's total assets $7,000,000 Less: current liabilities $1,800,000 = $5,200,000 X Weighted Avg Cost of Capital 9% = InvestmentCharge $468,000

15. Which of the following is most likely to correctly depict a cost that arises from a batch-level activity followed by one that arises from a facility-level activity? Batch-Level Facility-Level Activity Activity A. Direct materials Plant depreciation B. Inspection Property taxes C. Quality assurance Shipping D. Plant maintenance Insurance E. Management salaries Material handling

B. Inspection Property taxes

9.HRM Company, which applies overhead to production on the basis of machine hours, reported the following data for the period: Actual units produced 13,000 Actual fixed overhead incurred $742,000 Standard fixed overhead rate $15 per hour Budgeted fixed overhead $720,000 Planned level of machine-hour activity 48,000 Actual level of machine-hour activity 50,000 If HRM estimates four hours to manufacture a completed unit, the company's fixed-overhead budget variance would be: A.$22,000 favorable B.$22,000unfavorable C.$60,000 favorable D.$60,000 unfavorable E.$8,000 favorable

B.$22,000unfavorable Fixed OH Budget Variance = Actual Fixed OH -Budgeted FOH = $742,000 -720,000 = $22,000 U

17.In a company that uses direct-labor hours as its cost driver for overhead, which of the following elements is (are) used to calculate the Variable-Overhead Spending Variance? A. Actual variable overhead incurred during the period B. Variable overhead that is projected based on actual direct-labor hours worked C. Variable overhead that is allowed based on actual output produced A.C only B.Both A and B C.Both A and C D.Both B and C E.A, B, and C

B.Both A and B

19.The CFO of Twin Falls Enterprises is setting up a new activity-based costing system. He has currently finished identifying the cost pools and has determined which cost pools should be allocated. What is his next step in the process? A.Add the cost pools together. B.Identify the cost driver for allocating each cost pool C.Divide each cost pool by the number of units produced. D.Determine the appropriate denominator volume of each cost driver to calculate allocation rates. E.Determine the predetermined overhead rate.

B.Identify the cost driver for allocating each cost pool

2. Feinstein, Inc., an appliance manufacturer, is developing a new line of ovens that uses controlled-laser technology. The production engineering costs associated with the new ovens is said to arise from a: A.unit-level activity. B.batch-level activity. C.product-sustaining activity. D.facility-level activity. E.competitive-level activity.

B.batch-level activity.

Sustainable Development

Business activity which produces the goods and services needed without limiting the ability of future generations to meet their needs

11. Clucky Chicken Co. operates a chain of fast food restaurants in Orlando, Florida. They are considering closing one of their 30 restaurants due to its poor financial performance. Which of the following financial data isn't relevant in making their decision? A. Lost sales B. Variable cost savings C. Advertising costs for the restaurant chain in the Orlando newspaper D. Monthly rental for the building space (lease is cancellable) E. All of the above costs are relevant

C. Advertising costs for the restaurant chain in the Orlando newspaper

13.The salary and fringe benefits paid to the maintenance supervisor in a manufacturing plant is an example of: Product Cost Manufacturing Overhead Fixed A. No Yes Yes B. Yes No No C. Yes Yes Yes D. No No Yes E. Yes Yes No

C. Yes Yes Yes

Given the following information, what will the % increase in NI of a $45,000 increase in sales? Sales= $250,000 VC= $180,000 FC= $29,000

CM = 250,000 - 180,000 = 70,000 CM Ratio = 70,000 / 250,000 = 28% NI (before) = 70,000 - 29,000 = 41,000 Change in NI = 45,000 (28%) = 12,600 % Change = 12,600 / 41,000 = .3073 = 30.7%

The analysis of long run decisions requires the use of

Capital Budgeting

12. For 2017, Johnson Company had actual total variable costs of $200,000 and fixed costs of $400,000. If the company's break-even sales level for the year had been $500,000, what was the actual amount of profit or (loss) before taxes in 2017? A. $1,000,000 B. ($200,000) C. $100,000 D. $400,000 E. $0

D. $400,000 At BE, profit = 0, and FC = $400k(the same). Sales - VC = CM - FC = Profit before tax $500k - VC = CM - $400k = $0, so CM = $400k and VC = $100k Ratio of VC to Sales will be a constant 1:5, so 2017 sales = $200k VC x 5 = $1M, and $1M Sales-$200k VC = $800k CM -$400k FC = $400,000

8. Which of the following statements is false? A. Opportunity costs should always be considered in special order decisions. B. An opportunity cost can be defined as the benefit associated with a rejected alternative when making a choice. C. A relevant cost can be described as a future cost that differs among alternatives. D. Fixed costs are not relevant in decision-making. E. All of the above statements are true.

D. Fixed costs are not relevant in decision-making.

7.Which of the following appear in both a company's Gross Margin-format income statement and their Contribution Margin-format income statement? Sales Gross Margin Fixed Cost COGS A. YES NO YES NO B. NO NO YES YES C. NO YES NO YES D. YES NO NO NO E. YES YES YES YES

D. YES NO NO NO

2.For activity-based-costing, which of the below factors should be considered in the selection of a cost driver (aka cost-allocation base)? I.The degree of correlation between consumption of an activity and consumption of a particular cost driver. II.The accuracy with which a particular cost driver can be tracked given the technological capabilities of the company. III.The likelihood that a particular cost driver will cause an increase or decrease in the cost of measurement. A. I only B. II only C. III only D. Two of the above options are correct. E. A, B, and C above are all correct.

E. A, B, and C above are all correct.

20.Big Sky Computers uses a standard costing system and charges manufacturing overhead to products on the basis of machine hours by using a predetermined overhead rate. The following data pertain to the current year: Budgeted manufacturing overhead $585,650 Actual manufacturing overhead $543,123 Standard machine hours per unit 0.5 Actual machine hours 19,050 Budgeted units to produce 42,500 Actual units produced 40,000 Before any end-of-year adjustments, manufacturing overhead applied to production totaled: A.$486,816 B.$653,284 C.$525,018 D.$585,650 E.$551,200

E.$551,200

Mfg8. In comparison with a system that uses a single, volume-based cost driver, an activity-based costing system is preferred when a company has: A.A large proportion of non-unit-level activities. B.Existing variances from budgeted amounts. C.Diversity among a large number of products. D.Both A and B E.Both A and C

E.Both A and C

What is the difference between gross margin and total contribution margin?

Gross Margin=deducting all COGS (all VC and FC expenses) Contribution Margin=only deduct VC product cost (manufacturing selling & admin expenses)

Gross vs Net Book Value of ROI

Gross: constant ROI Net Book Val: As book val depreciates, ROI Inc -Since older assets, w/ lower net book values, result in higher ROI, managers are discouraged from investing in new assets

Sales Margin=

Income/Sales Revenue (%)

What constitutes relevant info?

Info = relevant to a decision when: 1)it has a bearing on the future AND 2)it differs among competing alternatives

How do you calculate imputed interest charge?

Interest Charge = Imputed i rate x invested capital OR Interest Charge = Division Profit - Residual Income

Residual Income=

Investment Center Profit-Interest Charge Interest Charge=Imputed i Rate X Invested Capital -Encourages managers to make profitable investments that would be rejected by managers using ROI

Jasmine Inc., a retailer of fine perfumes, is experiencing difficulties with the operations of its Eastern Division (in millions): Sales = $117,000 Variable Expenses = $90,000 Contribution Margin = $27,000 Traceable Fixed Expenses = $35,000 Allocated Fixed Expenses = $12,800 Profit (loss) = ($20,800) If the Eastern division is eliminated, Jasmine will save $5,000 of the traceable fixed expenses. The effect of closing the Easter Division on Jasmine Co.'s profit is:

Lost Contribution Margin - Avoidable Expenses = 27,000 - 5,000 = 22,000 decrease in contribution margin to cover unavoidable fixed expenses

Total Direct-Material Variance =

Price Variance+Quantity Variance

Total Direct-Labor Variance=

Rate Variance+Efficiency Variance

There is no fixed overhead volume variance when the

Standard activity allowed = the planned activity level

What is activity based management?

The goal of continually improving each activity in which the organization engages

When a division has excess capacity available to meet the demands of another division within the company, the transfer price should be

The outlay cost

To make optimal decision, managerial performance should be based upon

The same criterion used for decision making

If sales change by x% what happens to VC and CM?

They also change by x% CM changes in direct proportion to changes in sales volume

What will the range of the transfer price always fall within?

VC<=Transfer Price<=Market Price

Hickory Manufacturing has been staining & finishing it's rocking chairs in house, based upon an estimated volume of 30,000 rocking chairs per month. The information related to the finishing department is as follows: DM/unit = $5 DL/unit = $17.50 Variable MOH/unit = $6 Fixed MOH/unit = $2 OR Fixed MOH = $60,000 If Hickory outsources the finishing of the chairs, it can decrease fixed costs by $30,000 per month. Arrow Finished has offered to do the finished at a cost of $30/chair. What will be the total effect on Hickory's profits if this offer is accepted?

Variable Cost Savings = ($5 + 17.50 + 6)x30,000 = $855,000 + 30,000 in fixed costs = $885,000 in total savings Cost of outsourcing = $30 x 30,000 = $900,000 NET LOSS of outsourcing = 900,000 - 855,000 = $15,000

Hickory Manufacturing has received a request for a special order of 1,000 rocking chairs at a sales price of $150 per chair. The current information available to evaluate the decision is as follows: Normal Selling price/chair = $210 DM/chair = $45 DL/chair = $37.50 Variable MOH/chair = $15 Fixed MOH/chair = $6 Assuming Hickory has the capacity to accept this order, the effect on NI of accepting is a:

Variable Costs = $45 + $37.50 + $15 = $97.50 Contribution to Profit = (150 - 97.50) x 1000 = $52,500 Fixed costs = irrelevant since they will not increase in total if the order is accepted

Transfer price w/ excess capacity under general rule?

Variable cost bc opp cost = 0

Product costs of a manufacturer include:

all costs incurred in it's manufacturing and labor costs of production employees

The goals and metrics of the organization's balanced score card

are driven by the organization's vision and strategy

Non-financial measures are used primarily to

assist management in continuous operational process movement

Which of the following does not affect customer profitability analysis? a. special delivery requests b. standard product costs c. product customization d. change orders

b. standard product costs

An engineered cost

bears a definitive physical relationship to the activity measure

Balanced Scorecard uses

both financial and non-financial performance measures

The focus on identification of activities that impact the cost object is part of the ______ view of an ABC system

cost assignment

The classification of activities into levels is called a

cost heirarchy

During the budgeting process, cost behavior patterns are used to make a ______ for each of the firm's cost items

cost prediction

The extent to which a customer perceives the company's product to be of high quality is a

customer acceptance measure

The cost of identifying the cost and use of services by customers is called

customer profitability analysis

The pareto diagram shows tho

frequency with which quality control problems = observed

When inventories decrease during the period, income under absorption costing will be

less than under variable costing

Lead Indicators

measures of non-financial and financial outcomes that guide management to making current decisions that will result in desirable results in the future -Market trends, political events, complaints, satisfaction, market share

Out put measures are usually not meaningful in

multi-product environment -Since each product might utilize a different ratio of activity to product, input measures, would better match costs with products

Activity analysis that looks at a set of linked activities to determine the cause of a non-value added activity is called

process value analysis

The relative proportion of each type of product sold is called the

sales mix

The real control variance for variable overhead costs is

the spending variance

Quality cost reporting is most useful when

trends are examined over a period of time

Do you use units or cost to choose high low values?

units

The position that only costs that will not be repeated in the future should be included in inventory cost is an argument for

variable costing