Accounting Test Chapter 11, 13, 14
Qualitative information is only relevant for decision making if it can be quantified
False
Differential revenues are expected future revenues that vary between the alternatives under consideration
True
Which of the following items is qualitative?
Degree to which the new machine can be integrated with existing machinery
Outdoor living company has just received special order for 500 hammocks. Outdoor living has sufficient idle capacity to accept the order. Accepting the order will increase outdoor living's variable manufacturing costs. Which type of cost is considered a sunk cost to outdoor livings decision of whether to accept or reject the special order?
Depreciation on equipment that would be used to make the hammocks
For purposes of decision making, avoidable costs are costs that:
Differ between alternatives
Relevant costs are often referred to as:
Differential costs
Expected future revenues that differ among the alternatives under consideration are often referred to as:
Differential revenues
Sales commissions per box
Irrelevant/variable
Ng company sells one product that has a sales price of $20 per unit, variable cost of $12 per unit, and total fixed costs of $300,000. What is the amount of sales volume in dollars necessary to attain a desired profit of $100,000
$1,000,000
Advertising
Relevant/fixed
Lindsay purchased a raffle ticket for $17. Just before the grand prize drawing two people tried to buy her ticket. The first person offered $70 and another offered $105. What is Lindsay's opportunity cost of keeping the raffle ticket?
$105
QRC company is trying to decide which of the two alternatives it will accept. The costs and revenues associated with each alternative are listed below: what is the differential revenue for this decision?
$12,500
Valley Farm Supply started the period with $80,000 cash. Cash receipts for January expected to total $350,000. Cash disbursements or January were expected to be $290,000. What is the expected cash balance at the end of January?
$140,000
Max bought a ticket to the championship baseball game for $75. Someone approached him outside the stadium and offers him $175 for his ticket. If max decides to go to the game, instead of selling his ticket, how much does it cost max to go to the game?
$175
Breezy company is disposing of equipment that was originally purchased for $600,000 and has $240,000 of accumulated depreciation to date. The same equipment would cost $800,000 to replace. What is the total amount of sunk cost?
$360,000
QRC company is trying to decide which one of the two alternatives it will accept. The costs and revenues associated with each alternative are listed below. What is the differential revenue for this decision?
$50,000
Scholastic tours is trying to decide which one of 2 tours it will introduce. The costs and revenues associated with each alternative are listed below: what are the incremental (differential) costs of the western tour?
$8,000
Which of the following is a benefit associated with budgeting?
- Promotes planning and coordination - The ability to take corrective action to improve performance - Enhances performance measurement - ***All of these answers are correct
Select the correct statement regarding fixed costs
- There is a contradiction between the term "fixed cost per unit" and the behavior pattern implied by the term. - Fixed cost per unit is not fixed. - Total fixed cost remains constant when volume changes. - **All of these are correct statements.
Ann is trying to decide which one of two job offers she will accept. Several items are presented below: select the items that are irrelevant to Ann's decision:
1 (base salary), 3 (moving allowance) & 5 (job search costs incurred)
Jason is trying to decide which one of 2 job offers he will accept. Several items are below: which of the above items would be considered relevant costs?
2 (overtime compensation) and 4 (signing bonus)
Sunk costs:
Are not considered when evaluating new proposals
The costs and revenues associated with 2 alternatives are listed below: which alternative should be selected based on this information?
Alternative 2 because it has a higher profit
Cost of resetting sewing machines to change shirt sizes
Batch level cost
Startup cost to change color of a product
Batch level cost
Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget?
Both administrative salaries and advertising expense
Which of the following statements is true?
Both outsourcing decreases the extent of a company's vertical integration and reputation of the supplier is a critical issue in an outsourcing decision are true.
At the break-even point
Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct
Select the incorrect statement regarding the contribution margin income statement
Contribution margin represents the amount available to cover product costs and thereafter to provide profit
Expressing plans for a business in financial terms is commonly called
Budgeting
Select the incorrect statement regarding the human fact in the budgeting process
Budgets force employees to follow the organizations plan
Budgeted depreciation expense would not appear on a
Cash budget
future cash flows
Cash expense that will be incurred in the future as a result of a decision is a relevant cost
Opportunity costs
Cash inflow that will be sacrificed as a result of a particular management decision is a relevant cost
Which of the following budgets or schedules use data contained in the selling and administrative expense budget?
Cash payments schedule
Asset replacement decisions involve:
Choices between continuing operating existing equipment or replacing it with new equipment
The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a 12 month planning horizon, is referred to as:
Continuous budgeting
What is the formula for calculating contribution margin ratio?
Contribution margin/ sales
Factory lawn care cost
Facility level cost
Real estate tax for the factory
Facility level cost
Salary of company president
Facility level cost
Which of the following costs typically include both fixed and variable components?
Factory overhead
Direct labor is an example of a product level cost
False
Mary must decide between two alternatives for the weekend: babysitting or yard work. If she babysits, she will receive $40 and will incur $15 in transportation costs. If she does yard work, she will receive $40 and will incur $3 in lawn mower gas and oil costs and $5 in transportation costs. The payment she would receive for the jobs is relevant in deciding which alternative to select
False
Only variable costs are relevant for decision making
False
Relevant costs are frequently called unavoidable costs
False
Sunk costs are sometimes relevant for decision making purposes
False
The book value of equipment generally is one of the most important factors to consider in deciding to replace the equipment
False
The practice of buying goods and services from other companies is commonly known as vertical integration
False
To be relevant in decision making, cost revenue information must be future oriented and must not differ between the alternatives
False
Variable costs are always relevant in decision making
False
Rent of display space
Irrelevant/fixed
Committed costs
Future costs that cannot be avoided are not relevant because they will be incurred irrespective of the business decision being considered
General overheads
General and administrative overheads which are not affected by the decisions under consideration should be ignored
Which of the following items would not be found on a contribution format income statement?
Gross Margin
All of the following would be considered a fixed cost for a bottled water company except:
Hourly wages for machine operators
Special order decisions:
Involve an offer from a customer to buy goods at a lower-than-normal selling price
Qualitative information is relevant when:
It makes a difference in the decision and It differs between the alternatives
A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the
Master budget
Relevant cost
Only relates to specific management decision, and which will change in the future as a result of that decision. It is extremely useful for eliminating extraneous information from a particular decision making process
Avoidable costs
Only those costs are relevant to a decision that can be avoided if the decision is not implemented
Budgeting that involved the development of a master budget to direct the firms activities over the short term is referred to as
Operations budgeting
Jack currently works for a law firm full time and earns $60,000 a year. He is thinking of quitting his job to pursue a medical degree. Medical school will cost him $100,000 per year. If jack quits his job and goes to medical school, the salary he currently earns would be considered what type of cost?
Opportunity cost
The benefits sacrificed when one alternative is chosen over another are referred to as:
Opportunity costs
Which of the following is NOT a possible alternate term for costs that can be eliminated by taking a specified course of action?
Opportunity costs
Select the correct statement regarding opportunity costs:
Opportunity costs are not recorded in a firms financial accounting records
Pilot motors corporation is an automobile manufacturer. The company produces its own motors, tires, and other automobile parts. Pilot has the opportunity to purchase tires from another manufacturer instead of producing them in their own facility. This type of decision is typically known as:
Outsourcing decision
The budgeting technique that provides for employee input into the planning process is known as:
Participative budgeting
One company's practice is to provide bonuses to salespeople who exceed their sales targets. Which of the following advantages of budgeting enabled the company to establish its recognition program?
Performance measurement
Cost of patent
Product level cost
Research and development
Product level cost
Which of the following is not a benefit of budgeting?
Provides assurance that accounting records are in accordance with generally accepted accounting principles
Which of the following budgets would be prepared by a manufacturing company but not a merchandising company?
Raw materials budget
(Outdoor living scenario cont.) which type of cost is considered relevant to outdoor living as decision of whether to accept or reject the special order?
Raw materials to make the 500 hammocks
Craft Inc. normally produces b/w 120,000 and 150,000 units each year. Producing more than 150,000 units alters the company's cost structure. For example, fixed costs increase bc more space must be rented, and additional supervisors must be hired. The production range b/w 120,000 and 150,000 is called the:
Relevant Range
When evaluating alternatives, what type of costs should be considered?
Relevant costs
2 primary characteristics distinguish relevant from useless info:
Relevant info differs among the alternatives under consideration, and relevant info is future oriented
All of the following statements describe qualities of relevance except:
Relevant information requires a high degree of precision
Select the correct statement regarding relevant costs and revenues:
Relevant revenues must differ between the alternatives
Select the correct statement regarding relevant revenues
Relevant revenues must make a difference in the decision under consideration
Cost per box
Relevant/variable
Which of the following budgets needs to be prepared prior to preparing a purchases budget?
Sales budget
The type of planning that involves long-term decision, such as defining the scope of the business and deciding what products to make is known as:
Strategic Planning
Planning concerned with long-range decisions such as defining the scope of the business is referred to as
Strategic planning
Non-cash expenses
Such as depreciation are not relevant because they don't affect the cash flows of a business
Sunk cost
Sunk cost is expenditure which has already been incurred in the past. Sunk cost is irrelevant because it does not affect the future cash flows of a business
Select the INCORRECT statement regarding sunk costs
Sunk costs are relevant if they differ between the alternatives
Select the correct statement about budgeting and human behavior
The attitudes of upper managers significantly impact budget effectiveness
All of the following variables that could be considered in a decision to outsource a component that is currently being produced in house. Which of the following is NOT likely to become relevant?
The book value of equipment used in making the component
Clean inc cleans and waxes floors for commercial customers. The company is presently operating at less than capacity with equipment and employees idle at times. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $27,000. The size of the proposed job is $40,000 square feet. The company's normal service costs are as follows: if the company accepts the special offer:
The company will lose $15,000 on the job
Select the correct statement regarding fixed costs
The fixed cost per unit decreases when volume increases
Select the incorrect statement about the planning process
The longer the time period, the more specific the plans
Select the correct statement about the master budget
The master budget usually includes operating budgets and capital budgets, and pro forma statements
Select the incorrect statement regarding the cash budget
The total cash available is calculated by adding cash receipts and the ending cash balance
A potential danger from outsourcing is that a company may become too dependent on the supplier
True
Costs that are not related to any specific product, batch, or unit of production are referred to as facility-leave costs
True
Grady corporation is evaluating 2 decision alternatives. Alternative one has costs of $2,000 and revenues of $3,000 while alternative two has costs of $3,200 and revenues of $4,000. The amount of differential revenue is $1,000
True
One of the potential dangers from outsourcing is the possible occurrence of low ball pricing
True
Outsourcing reduces the extent of a company's vertical integration
True
Segment reports are used to evaluate the true profitability of a company's business segments
True
Direct labor
Unit level cost
The cost that is avoided when a company eliminated a single item of a product of service is a:
Unit-level cost
Java Joe operates a chain of coffee shops. The company pays rent of $20,000 per year for each shop. Supplies (napkins, bags and condiments) are purchased as needed. The manager of each shop is paid a salary of $3,000 per month, and all other employees are paid on an hourly basis. Relative to the number of customers for a shop, the cost of supplies is which kind of cost?
Variable Cost
Incremental cost
Where diff alternatives are being considered, relevant cost is the incremental or different cost between the various alternatives being considered
Rock Creek Bottling Company pays its production manager a salary of $6,000 per month. Salespersons are paid strictly on commission, at $1.50 for each case of product sold. For Rock Creek Bottling Company, the production manager's salary is an example of:
a fixed cost
Rock Creek Bottling Company pays its production manager a salary of $6,000 per month. Salespersons are paid strictly on commission, at $1.50 for each case of product sold. For Rock Creek Bottling Company, the cost of the salespersons' commissions is an example of:
a variable cost
The excess of revenue over variable costs is referred to as:
contribution margin
In order to prepare a contribution format income statement
costs must be separated into variable and fixed costs
Fixed cost per unit:
decreases as production volume increases
Once sales reach the break-even point, each additional unit sold will:
increase profit by an amount equal to the per unit contribution margin
Larry's Lawn Care incurs significant gasoline costs. This cost would be classified as a variable cost if the total gasoline cost:
increases in direct proportion to the number of hours the lawn equipment is operated
A cost that contains both fixed and variable elements is referred to as a
mixed cost
