Accounting midterm 2 review

When there are batch-level or product-level costs, in comparison to a traditional cost system, how will an activity-based costing system ordinarily shift costs? 1. From high-volume to low-volume products 2. From low-volume to high-volume products 3. From specialized to standardized products 4. From standardized to specialized products

1. From high-volume to low-volume products Under traditional costing methods, overhead costs are allocated to products on the basis of some measure of volume such as direct labor-hours or machine-hours. This results in most of the overhead cost being allocated to high-volume products. In contrast, under activity-based costing, some overhead costs are allocated on the basis of batch-level or product-level activities. This change in allocation bases results in shifting overhead costs from the high-volume products to low-volume products.

Which of the following statements is true with respect to a budgeted income statement? 1. Its net income will impact the ending retained earnings balance shown on the balance sheet. 2. Its net income should equal the net cash flows from the cash budget. 3. its cost of goods sold is derived from the corresponding dollar amount shown in the production budget. 4. Its selling and administrative expenses exclude depreciation expense because it is a product cost.

1. Its net income will impact the ending retained earnings balance shown on the balance sheet.

Order of the Master Budget

1. The Sales Budget 2. Expected Cash Collection 3. The production Budget 4. The direct materials budget 5. Expected cash disbursement 6. Selling and administrative expense budget 7. Cash Budget 8. Budgeted income statement 9. Budgeted balance sheet

For a production budget, the ______ is the beginning inventory for the year. 1. beginning inventory for the first quarter 2. beginning inventory for the last quarter 3. ending inventory for the last quarter 4. sum of beginning inventories for the four quarters

1. beginning inventory for the first quarter

In a budgeted income statement, _________ is subtracted from sales to arrive at gross margin. 1. cost of goods sold 2. interest expense 3. selling and administrative expense 4. depreciation expense

1. cost of goods sold

indicate whether each cost item is treated as a period cost or product cost. 1. Direct labor 2. Fixed manufacturing overhead 3. Variable manufacturing overhead 4. Fixed selling and administrative expenses 5. Variable selling and administrative expenses

1.Product Cost 2.Period Cost 3.Product Cost 4.Period Cost 5.Period Cost

Max, Incorporated, has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000, respectively. What is the segment margin for the South Division? 1. $100,000 2. $200,000 3. $300,000 4. $400,000

2. $200,000

Which of the following costs would not be allocated to products or customers? 1. Customer service 2. Other 3. Machine setup 4. Product design

2. Other

Ordering materials, setting up machines, assembling products, and inspecting products are examples of ________. 1. cost drivers 2. cost pools 3. cost activity levels

2. cost pools

The difference between absorption costing net operating income and variable costing net operating income can be explained by the way these two methods account for ________. 1. all overhead costs 2. fixed overhead costs 3. selling and administrative expenses 4. variable overhead costs

2. fixed overhead costs

Smarton Company is in the process of preparing its budgeted income statement. It has determined its estimated gross margin to be $90,000. The company also expects to incur selling and administrative expenses of $30,000 and interest expense of $12,000. What is Smarton's budgeted net income? 1. $18,000 2. $30,000 3. $48,000 4. $60,000

3. $48,000 Budgeted net income = Gross margin − Selling and administrative expenses − Interest expense Budgeted net income = $90,000 − $30,000 − $12,000 = $48,000

When the number of units produced is greater than the number of units sold, variable costing net operating income will be ________. 1. the same as absorption costing net operating income 2. greater than absorption costing net operating income 3. less than absorption costing net operating income

3. less than absorption costing net operating income

The budgeting process begins with the preparation of the ______ budget. 1. Cash 2. Direct materials 3. production 4. sales

4. sales

Absorption costing income statements ignore ________. 1. direct materials and direct labor costs 2. direct and indirect cost distinctions 3. product and period cost distinctions 4. variable and fixed cost distinctions

4. variable and fixed cost distinctions

Activity-based costing accumulates costs for each __________.

Activity

Activity-based costing estimates the costs of the resources consumed by _________.

Cost objects

Advertising is an example of a __________activity.

Product-level

Which of the following is a major factor that should be taken into consideration while planning the desired level of inventories? 1. Costs of carrying inventory. 2. General administrative policy of the company. 3. Selling price of the finished product. 4. Statutory requirements.

1. Costs of carrying inventory.

When the units produced are equal to the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method. 1. Is equal to 2. Is less than 3. is greater than

1. Is equal to

Film Studio, Incorporated has beginning retained earnings of $80,000 and expects to earn net income of $70,000 during the budget period. What would be the budgeted ending balance in retained earnings if the company declares and pays dividends of $50,000? 1. $80,000 2. $100,000 3. $150,000 4. $200,000

2. $100,000 Ending retained earnings = Beginning retained earnings + Net income − Dividends; Ending retained earnings = $80,000 + $70,000 − $50,000 = $100,000

Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected cash disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum cash balance of $40,000. How much cash will the company need to borrow? 1. $15,000 2. $25,000 3. $30,000 4. $40,000

2. $25,000 Excess (deficiency) of cash available over disbursements = Beginning cash balance + Cash receipts − Cash disbursements Excess (deficiency) of cash available over disbursements = $5,000 + $80,000 − $70,000 = $15,000 Amount to be borrowed = Minimum cash balance − Excess (deficiency) of cash available over disbursements Amount to be borrowed = $40,000 − $15,000 = $25,000

All of the following are differences between activity-based costing (ABC) and traditional absorption costing except ________. 1. ABC may assign nonmanufacturing costs to products 2. ABC allocates all manufacturing costs to products 3. ABC uses many cost pools 4. ABC may exclude some manufacturing costs, such as organization-sustaining costs

2. ABC allocates all manufacturing costs to products

Which of the following is true? 1. Activity-based costing (ABC) is a costing method that provides managers with cost information for preparing financial reports for external parties. 2. ABC may assign nonmanufacturing costs to products. 3. ABC includes all manufacturing costs in its product cost calculations 4. ABC allocates overhead costs using volume-based measure such as machine-hours and direct labor-hours only.

2. ABC may assign nonmanufacturing costs to products.

Which of the following statements is correct? 1. Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours. 2. Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool. 3. An activity-based costing system is generally easier to implement and maintain than a traditional costing system. 4. One of the goals of activity-based management is the elimination of waste by allocating costs to products that waste resources.

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

Which of the following is not a management report that is normally prepared with ABC data? 1. Product profitability 2. Customer margins 3. Customer profitability

2. Customer margins

Which of the following is deducted from the total selling and administrative expense budget to determine the cash disbursements for selling and administrative expense budget? 1. Advertising expense 2. Depreciation expense 3. Selling commissions 4. Utilities expense

2. Depreciation expense

Which of the following is an allocation base commonly used under the traditional methods for allocation of overhead costs? 1. Number of batches. 2. Direct labor-hours. 3. Indirect materials 4. Number of customer orders.

2. Direct labor-hours.

Which of the following would "not" be considered a product-level activity? 1. Advertising a product 2. Human resource management 3. Parts administration 4. Testing a prototype of a new product

2. Human resource management

When the units produced exceed the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method. 1. Is equal to 2. Is less than 3. is greater than

2. Is less than

Which of the following statements about the segment margin is not true? 1. In preparing a segmented income statement, the variable expenses are deducted from sales to yield the contribution margin for each segment 2. The segment margin is obtained by deducting the common fixed costs that have been allocated to a segment from that segment's contribution margin 3. The segment margin represents the margin available after a segment has covered all of its own costs 4. The segment margin is the best gauge of the long-run profitability of a segment because it includes only those costs that are caused by the segment.

2. The segment margin is obtained by deducting the common fixed costs that have been allocated to a segment from that segment's contribution margin.

In the second-stage allocation of overhead costs, we use ________ to assign costs to cost objects. 1. activity levels 2. activity rates 3. units 4. cost pools

2. activity rates

Shipping orders to a grocery store would be considered a(n) ________. 1. unit-level activity 2. batch-level activity 3. product-level activity 4. customer-level activity 5. organization-sustaining activity

2. batch-level activity

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What are the production needs for the first quarter? 1. 160,000 bottles 2. 175,000 bottles 3. 195,000 bottles 4. 215,000 bottles

3. 195,000 bottles Production needs for the first quarter = Budgeted sales of 200,000 bottles + Ending inventory of 15,000 bottles − Beginning inventory of 20,000 bottles = 195,000 bottles

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What is the desired ending inventory for the second quarter? 1. 15,000 bottles 2. 20,000 bottles 3. 25,000 bottles 4. 40,000 bottles

3. 25,000 bottles The desired ending inventory for the second quarter = Third quarter sales of 250,000 bottles × Ending inventory percentage of 10% = 25,000 bottles

Which of the following costs would not be allocated using ABC? 1. Marketing 2. Factory equipment depreciation 3. Direct labor 4. Factory utilities

3. Direct labor Direct labor is not allocated using ABC since direct costs, such as direct materials, direct labor and shipping expenses can easily be traced to the products.

Which of the following is TRUE regarding budgets in the master budget? 1. The first step of the budgeting process is to prepare the production budget. 2. The sales budget is prepared after the production budget. 3. The direct materials budget is prepared after the production budget. 4. None of the above.

3. The direct materials budget is prepared after the production budget.

When the units produced are less than the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method. 1. Is equal to 2. Is less than 3. is greater than

3. is greater than

For the budget period ending December 31 of the current year, Aaron Corporation estimates its ending balances for cash as $4,000, accounts receivable as $16,000, finished goods inventory as $12,000, and raw materials inventory as $8,000. Invoices relating to raw materials in the amount of $14,000 are expected to be unpaid as of December 31. What is the amount of total current assets that will be reported on the budgeted balance sheet? 1. $20,000 2. $26,000 3. $32,000 4. $40,000

4. $40,000 Total current assets = Cash + Accounts receivable + Finished goods inventory + Raw materials inventory Total current assets = $4,000 + $16,000 + $12,000 + $8,000 = $40,000

Bovine Corporation has two divisions: televisions and mobile phones. The mobile phone division has a contribution margin of $600,000. The company's common fixed costs and total traceable fixed costs are $100,000 and $500,000 respectively. Assuming the traceable fixed costs of the television division are $300,000, what is the segment margin of the mobile phone division? 1. $100,000 2. $200,000 3. $300,000 4. $400,000

4. $400,000

Which of the following is included as a product cost under the absorption costing method but not under the variable costing? 1. Direct materials 2. Direct labor 3. Variable manufacturing overhead 4. Fixed manufacturing overhead

4. Fixed manufacturing overhead

Which of the following would "not" be considered a batch-level activity? 1. Clerical activity associated with processing purchase orders to produce an order for a standard product 2. Purchase order processing 3. Setting up equipment 4. Worker recreational facilities

4. Worker recreational facilities

A company determines that the number of units sold is the cost driver for its variable selling and administrative expense budget. The product of its variable selling and administrative rate and budgeted unit sales will be ________. 1. budgeted sales revenue 2. total budgeted cash disbursements for selling and administrative expenses 3. total budgeted fixed selling and administrative expenses 4. total budgeted variable selling and administrative expenses

4. total budgeted variable selling and administrative expenses When budgeted variable selling and administrative expenses are driven by the number of units sold, the variable selling and administrative rate per unit sold is multiplied by the budgeted unit sales to arrive at the total budgeted variable selling and administrative expenses. The total budgeted fixed selling and administrative expenses are then added to the total budgeted variable selling and administrative expenses to arrive at the total budgeted selling and administrative expenses. Finally, the total budgeted selling and administrative expense is adjusted by subtracting any noncash selling and administrative expenses to arrive at the budgeted cash disbursements for selling and administrative expenses.