Accounting 320: Final Exam
The primary focus of cost management is to
help managers make different decisions.
Use of capacity levels based on demand
hides the amount of unused capacity
The cost of a product can be measured as any of the following except as one
identified as period cost.
The first step in the seven-step approach to job costing is to
identify the job that is the chosen cost object.
The five-step decision process
includes planning and control activities.
One-time-only special orders should only be accepted if ________.
incremental revenues exceed incremental costs
The cost of printer paper on a college campus would be a direct cost to the college but would need to be allocated as an indirect cost to
individual student instruction.
The concept of outsourcing services to countries with lower labor costs is known as
international outsourcing
Controllability
is the degree of influence a specific manager has over costs, revenues, and other items.
The value chain
is the sequence of business functions in which customer usefulness is added to products or services.
Benchmarking is
making comparisons to direct attention to why differences in costs exist across companies
The allocation of indirect costs in an activity-based costing system
may require other costs to be allocated to activities before the costs of the activities can be allocated to the products.
Companies that take advantage of quantity discounts in purchasing their materials have
nonlinear cost functions
When using the five-step decision process, which one of the following steps should be done first?
obtain information
A significant limitation of activity-based costing is the
operations staff's attitude toward the accounting staff.
Advertising of a specific product is an example of
product-sustaining costs.
Budgetary slack
provides managers with a hedge against unexpected circumstances.
Inventoriable costs are
recorded as assets when incurred.
Budgeting is the common accounting tool companies' use for planning and controlling. Budgets
serve as the financial expression of management's plans for the upcoming period.
A company may experience the downward demand spiral when
spreading capacity costs over a small number of units and setting selling prices even higher to recover those costs
The main difference between variable costing and absorption costing is
the accounting for fixed manufacturing costs
A company that manufactures dentures for use by local dentists would use
Job Costing
The Beta Mu Omega Chi (BMOC) fraternity is looking to contract with a local band to perform at its annual mixer. If BMOC expects to sell 250 tickets to the mixer at $10 each, which of the following arrangements with the band will be in the best interest of the fraternity?
$1000 fixed fee plus $5 per person attending
Why do most companies adhere to GAAP for their basic internal financial statements?
Accrual accounting provides a uniform method to measure an organization's financial performance.
What would be the approximate value of the coefficient of correlation between advertising and sales where a company advertises aggressively as an alternative to temporary worker layoffs and cuts off advertising when incoming jobs are on backorder?
-1.0
Which of the following statements is true about overhead cost variance analysis using activity-based costing?
A 4-variance analysis can be conducted.
In selecting a cost-allocation base for variable overhead, what criteria for the base is preferred?
A cause-and-effect relationship between the cost and the activity level
Manufacturing Overhead Control
All of the above - Represents actual overhead costs incurred - has a normal debit balance -is a control account with subsidiary ledger detailing the components of manufacturing overhead
Which of the following is not one of the ethical responsibilities of a management accountant?
Compliance
The Institute of Management Accountants issues which certification?
CMA
For which of the following industries would job-order costing most likely not be appropriate?
Cereal production.
In supporting managers, management accountants have three guidelines. These guidelines are:
Cost-benefit analysis, behavioral considerations and technical considerations, and different costs for different purposes.
Evaluating customer reaction of the tradeoff of giving up some features of a product for a lower price would best fit which category of management decisions under activity-based management?
Design decisions
The three categories of inventories commonly found in many manufacturing companies are:
Direct materials, work-in-process, and finished goods.
Which of the following is not a major benefit of budgets?
Eliminates innovation
Which of the following does not pertain to financial planning models in software form?
Eliminates need to update budgets as uncertainty resolved
Chade Corp. is considering a special order brought to it by a new client. If Chade determines the variable cost to be $9 per unit, and the contribution margin of the next best alternative of the facility to be $5 per unit, then if Chade has:
Excess capacity, the selling price must be greater than $9 per unit.
Comprehensive Care Nursing Home is required by statute and regulation to maintain a minimum 3 to 1 ratio of direct service staff to residents to maintain the licensure associated with the Nursing Home beds. The salary expense associated with direct service staff for the Comprehensive Care Nursing Home would most likely be classified as:
Fixed Cost
If the activity level increases but remains within the relevant range, which of the following statements is true of cost behavior?
Fixed cost per unit will decrease.
Which of the following is true of relevant information?
Future
Which of the following should not be considered for every option in the decision process?
Historical costs
Conroe Company is reviewing the data provided by its management accounting system. Which of the following statements is/are correct? I. A cost driver is a causal factor that increases the total cost of a cost object. II. Cost drivers may be volume based or activity based. III. Cost drivers are normally the largest cost in the manufacturing process.
I and II only are correct.
Applewhite Corporation, a manufacturing company, is analyzing its cost structure in a project to achieve some cost savings. Which of the following statements is/are correct? I. The cost of the direct materials in Applewhite's products is considered a variable cost. II. The cost of the depreciation of Applewhite's plant machinery is considered a variable cost because Applewhite uses an accelerated depreciation method for both book and income tax purposes. III. The cost of electricity for Applewhite's manufacturing facility is considered a fixed cost, even if the cost of the electricity has both variable and fixed components.
I only is correct.
Frisco Corporation is analyzing its fixed and variable costs within its current relevant range. As its cost driver activity changes within the relevant range, which of the following statements is/are correct? I. As the cost driver level increases, total fixed cost remains unchanged. II. As the cost driver level increases, unit fixed cost increases. III. As the cost driver level decreases, unit variable cost decreases.
I only is correct.
Mary Jacobs, the controller of the Jenks Company is working on Jenks' cash budget for year 2. She has information on each of the following items: I. Wages due to workers accrued as of December 31, year II. Limits on a line of credit that may be used to fund Jenks' operations in year 2. III. The balance in accounts payable as of December 31, year 1, from credit purchases made in year 1. Which of the items above should Jacobs take into account when building the cash budget for year 2?
I, II, III
Elmhurst Corporation is considering changes to its responsibility accounting system. Which of the following statements is/are correct for a responsibility accounting system. I. In a cost center, managers are responsible for controlling costs but not revenue. II. The idea behind responsibility accounting is that a manager should be held responsible for those items that the manager can control to a significant extent. III. To be effective, a good responsibility accounting system must help managers to plan and to control.
I, II, and III are correct.
Nobis Company uses an ABC system. Which of the following statements is/are correct with respect to ABC? I. Departmental costing systems are a refinement of ABC systems. II. ABC systems are useful in manufacturing, but not in merchandising or service industries. III. ABC systems can eliminate cost distortions because ABC develops cost drivers that have a cause-and-effect relationship with the activities performed.
III only is correct.
All of the following statements regarding standards are accurate except:
Ideal standards account for a minimal amount of normal spoilage
In regression analysis, the coefficient of determination:
Is used to determine the proportion of the total variation in the dependent variable (y) explained by the independent variable (X).
Which of the following is not true about strategy?
It has a short-term focus.
Which of the following statements does not describe responsibility accounting?
It identifies managers at fault for operating problems by reports for each responsibility center.
Lees Corp. is deciding whether to keep or drop a small segment of its business. Key information regarding the segment includes: Contribution margin: 35,000 Avoidable fixed costs: 30,000 Unavoidable fixed costs: 25,000 Given the information above, Lees should:
Keep the segment because the contribution margin exceeds avoidable fixed costs.
Which of the following pertains primarily to the planning of fixed overhead costs?
Key decisions are made at the start of the budget period determining the level of costs.
Which of the following is not a common problem encountered in collecting data for cost estimation?
Lack of observing extreme values
Of the following methods, the one that would not be appropriate for analyzing how a specific cost behaves is
Linear Programming
Under the contribution income statement, a company's contribution margin will be:
Lower if variable manufacturing overhead costs increase.
Which type of company converts raw materials into finished products?
Manufacturing
Which of the following does not accurately describe the application of job-order costing?
Manufacturing overhead costs incurred is used to determine total manufacturing costs.
Which of the following statements is correct regarding the components of the master budget?
Operating budgets are used to create cash budgets.
During the current year, XYZ Company increased its variable SG&A expenses while keeping fixed SG&A expenses the same. As a result, XYZ's:
Operating income will be the same under both the financial accounting income statement and contribution income statement.
Which of the following is not a key success factor in a company's effort to deliver increased levels of performance to the customer?
Price reduction
Which of the following is an example of a nonmanufacturing cost that may be analyzed using variances?
Product distribution costs
_____ management exists to provide advice and assistance to those responsible for attaining the objectives of the organization.
Staff
As part of her annual review of her company's budgets versus actuals, Mary Gerard isolates unfavorable variances with the hope of getting a better understanding of what caused them and how to avoid them next year. The variable overhead efficiency variance was the most unfavorable over the previous year, which Gerard will specifically be able to trace to:
Standard direct labor hours below actual direct labor hours.
Which of the following is not an advantage for using standard costs for variance analysis?
Standards are developed using past costs and are available at a relatively low cost
Ace Cleaning Service is considering expanding into one or more new market areas. Which costs are relevant to Ace's decision on whether to expand?
Sunk Cost - No Variable Costs - Yes Opportunity Costs - Yes
Which of the following statements is not true regarding the use of variable and absorption costing for performance measurement?
The Internal Revenue Service allows either absorption or variable costing as long as the method is not changed from year to year, while U.S. GAAP only allows absorption costing
Which of the following is not a reason for the performance evaluation model to differ from the decision model?
The accounting systems enable each decision to be tracked separately.
Once a company exceeds its breakeven level, operating income can be calculated by multiplying:
The contribution margin per unit by the difference between unit sales and breakeven sales.
Each of the following statements is correct regarding overhead variances except:
The efficiency overhead variance ignores the standard variable overhead rate.
A regression equation is set up, where the dependent variable is total costs and the independent variable is production. A correlation coefficient of 0.70 implies that:
The level of production explains 49% of the variation in total costs
Which of the following is not a correct use of the term opportunity cost?
The opportunity cost of holding inventory is the income forgone by tying up money in inventory and not investing it elsewhere
Basix Inc. calculates direct manufacturing labor variances and has the following information: Actual hours worked: 200 Standard hours: 250 Actual rate per hour: $12 Standard rate per hour: $10 Given the information above, which of the following is correct regarding direct manufacturing labor variances?
The price variance is unfavorable, while the efficiency variance is favorable
In order to determine whether a special order should be accepted at full capacity, the sales price of the special order must be compared to the per unit:
Variable cost of current production and the contribution margin of the next best alternative.
Metal Shelf Company's standard cost for raw materials is $4.00 per pound and it is expected that each metal shelf uses two pounds of material. During October Year 2, 25,000 pounds of materials are purchased from a new supplier for $97,000 and 13,000 shelves are produced using 27,000 pounds of materials. Which statement is a possible explanation concerning the direct materials variances?
The production department had to use more materials since the quality of the materials was inferior
Absorption costing enables managers to increase operating income in the short run by changing production schedules. Which statement is true regarding such action?
The reason for increased operating income is the deferral of fixed manufacturing overhead contained in unsold inventory
Which of the following statements is correct regarding the drivers of operating and financial budgets?
The sales budget will drive the cost of goods sold budget.
Which of the following is not an assumption of cost-volume-profit analysis?
The time value of money is incorporated in the analysis
Which of the following statements is more representative of activity-based costing in comparison to a department costing system?
The use of indirect-cost rates for significant resource use
Which statement can be made using the results of the activity analysis performed by In-Sync Fixtures?
The use of this refined activity-based costing system will increase the accuracy of the resulting product costs because a more appropriate cost driver will be used as the allocation base.
Rosland Graphics successfully bid on a job printing standard notebook covers during the year using last year's price of $0.27 per cover. This amount was calculated from prior year costs, noting that no changes in any costs had occurred from the past year to the current year. At the end of the year, the company manager was shocked to discover that the company had suffered a loss. "How could this be?" she exclaimed. "We had no increases in cost and our price was the same as last year. Last year we had a healthy income." What could explain the company's loss in income this current year?
Their costs were mostly fixed costs and the amount produced this year was less than last year.
The absolute minimum absorption-inventory cost that would be reported under the best conceivable operating conditions is a description of which type of denominator-level concept cost?
Theoretical capacity
Which of the following is not a factor in cost-volume-profit analysis?
Total variable costs
Which of the following is not a qualitative factor that Atlas Manufacturing should consider when deciding whether to buy or make a part used in manufacturing their product?
Variable cost per unit of the product.
What is always the question to ask to determine if revenues or costs are relevant?
What difference will a particular action make?
In comparing the absorption and variable cost methods, each of the following statements is true except
When inventory increases over the period, variable net income will exceed absorption net income.
RCG Services is investigating its profitability relationship with each of its customers. What is the one question RCG should ask in deciding whether to keep or drop a particular customer?
Will expected total corporate office costs decrease if a decision is made to drop the customer?
The costs incurred on jobs that are currently in production but are not yet complete would appear in the
Work-in-Process Control account.
The manner in which a company deals with end-of-period variances will determine the effect production-volume variances have on the company's end-of-period operating income. When the chosen capacity level exceeds the actual production level, which approach to end-of-period variances results in an unfavorable production-volume variance affect on that period's operating income?
Write-off to cost-of-goods-sold approach
King Tooling has produced and sold the following number of units of their only product during their first two years in business: Produced Year ended December 31, Year 1 50,000 40,000 Sold Year ended December 31, Year 2 50,000 55,000 Production costs per unit have not changed over the two-year period. Under variable costing, what is the amount of cost of sales relative to the cost of sales shown on the GAAP income statement of the company?
Year 1 - Higher Year 2 - Lower
If each professional in a service company is paid on an annual salary basis, why might the firm want to use a predetermined or budgeted rate for direct or professional labor?
Year-end bonuses paid to the professional staff are difficult to trace to individual jobs.
Flexible budgets
accommodate changes in activity levels.
Period costs are
all costs in the income statement other than cost of goods sold.
Production-cost cross-subsidization results from
assigning broadly averaged costs across multiple products without recognizing amounts of resources used by which products.
The basic principles and concepts of variance analysis can be applied to activity-based costing
by application as to the levels of cost hierarchy
Using normal costing rather than actual costing requires that the allocating of indirect manufacturing costs to work-in-process be
calculated by using the budgeted rate times actual quantity of allocation base.
The major cost management concept used in Kaizen budgeting is that of
continuous improvement
The person primarily responsible for management accounting and financial accounting is the ?
controller
Galway Co. management desires cost information regarding its Celtic brand. The Celtic brand is a(n)
cost object
A cost-allocation base may be any of the following except a
cost pool
When the high-low method is used to estimate a cost function, the variable cost per unit is found by
dividing the difference between costs associated with the highest and lowest observations of the cost driver by the difference between the highest and lowest observations of the cost driver.
Three criteria to use in identifying cost drivers from the potentially large set of independent variables that can be included in a regression model are
economic plausibility, goodness of fit, and significance of independent variable.
Performance evaluation using variance analysis should guard against
emphasis on a single performance measure
In refining a cost system
the criterion of cause-and-effect is used to relate indirect costs to a factor that systematically links to a cost object.
With the cumulative average-time learning model
the cumulative time per unit declines by a constant percentage when production doubles.
When using the incremental unit-time learning model
the time needed to produce the last unit declines by a constant percentage when production doubles.
Contribution margin is calculated as
total revenue - total variable costs.
The proponents of throughput costing
treat all costs except those related to variable direct materials as costs of the period in which they are incurred
The Treasurer
undertakes banking, financing, investments, and cash management duties.
One way for managers to cope with uncertainty in profit planning is to
use sensitivity analysis to explore various what-if scenarios in order to analyze changes in revenues or costs or quantities.
Operating income using variable costing as compared to absorption costing would be higher
when the quantity of beginning inventory is more than the quantity of ending inventory.
