ACCT 431 Exam 1

Place the following steps from the five-step decision process in order: A = Obtain information including historical costs B = Evaluate performance to provide feedback C = Make decisions choosing among alternatives D = Make predictions about the future E = Identify the problem and uncertainties 1. A, E, D, B, C 2. E, A, D, B, C 3. E, A, D, C, B 4. D, C, B, A, E

3. E, A, D, C, B

If the total cost function is y = 6,500 + 9X, calculate the variable cost for 4,400 units. a. $46,100 b. $39,600 c. $58,500 d. $6,500

b. $39,600

Which of the strategic perspectives of the balanced scorecard focuses on a company's own operations that create value for customers that, in turn, help achieve financial objectives? a. Financial b. Customer c. Internal-business-process d. Learning-and-growth

c. Internal-business-process

At the Spring Valley Company, the cost of the personnel department has always been charged to production departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs. Total personnel department costs are $299,000. Department A: 80 employees 15 new hires Department B: 280 employees 17 new hires Department C: 225 employees 16 new hires If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A? (Round any intermediary calculations to two decimal places and your final answer to the nearest dollar.) a. $41,860 b. $7,085 c. $143,111 d. $44,874

a. $41,860

Which of the following statements best define strategy? a. It describes how an organization can create value for its customers while differentiating itself from its competitors. b. It is an organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control. c. It is an organization's ability to offer products or services its customers perceive to be superior and unique relative to the products or services of its competitors. d. It describes how an organization motivates its employees to work for more hours without any increase in their wages.

a. It describes how an organization can create value for its customers while differentiating itself from its competitors.

Which of the following is not true with regards to relevant costs and relevant revenues? a. They are sunk costs and historical revenues b. They are expected costs and expected revenues c. They occur in the future d. They differ among alternative courses of action

a. They are sunk costs and historical revenues

John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $10,000 to make it road worthy again. His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $10,000 cash. The cost NOT relevant for this decision is the ________. a. acquisition cost of the Trail Blazer b. acquisition cost of the Grand Cherokee c. repairs to the Trail Blazer d. annual operating costs of the Grand Cherokee

a. acquisition cost of the Trail Blazer

Three major influences on pricing decisions are ________. a. competition, costs, and customers b. competition, demand, and production efficiency c. continuous improvement, customer satisfaction, and supply d. variable costs, fixed costs, and mixed costs

a. competition, costs, and customers

Making design decisions is an example of managing costs: a. during planning phase; before they are incurred but are "locked in" b. during the production phase; when they are incurred c. after the production phase; after they are locked in d. after they are committed to during the budgeting phase

a. during planning phase; before they are incurred but are "locked in"

One-time-only special orders should only be accepted if ________. a. incremental revenues exceed incremental costs b. differential revenues exceed variable costs c. incremental revenues exceed fixed costs d. total revenues exceed total costs

a. incremental revenues exceed incremental costs

Which component of strategy measures the changes in operating income attributed solely to an increase in the quantity of output between Year 1 and Year 2? a. the growth component b. the price-recovery component c. the productivity component d. the cost leadership component

a. the growth component

Crimson Services, Inc., employs 8 individuals. They are all paid $16.50 per hour. How would total costs of personnel be classified? a. variable cost b. mixed cost c. irrelevant cost d. fixed cost

a. variable cost

________ are the subdivisions of income that management accountants use for the strategic analysis of operating income. a. Growth, price-recovery and cost leadership components b. Growth, price-recovery and productivity components c. Cost leadership, price-recovery and productivity components d. Growth, cost leadership and productivity components

b. Growth, price-recovery and productivity components

Which of the following statements best relates to the balanced scorecard's financial perspective? a. How can we maximize profits for the current year? b. How can we increase shareholder value? c. How will we achieve continuous improvements? d. How can we maximize customer satisfaction?

b. How can we increase shareholder value?

Which of the following identifies an estimated price customers are willing to pay and then computes the cost to be achieved to earn the desired profit. a. Cost-plus pricing b. Target costing c. Kaizen costing d. Peak-load costing

b. Target costing

Which of the following statements is true of engineered costs? a. They arise from periodic (usually annual) decisions regarding the maximum amount to be incurred. b. They have a detailed, physically observable, and repetitive relationship with output. c. They include advertising, executive training, and R&D. d. They have high level of uncertainty.

b. They have a detailed, physically observable, and repetitive relationship with output.

The conference method estimates cost functions ________. a. using quantitative methods that can be very time consuming and costly b. based on analysis and opinions gathered from various departments c. using time-and-motion studies d. by mathematically analyzing the relationship between inputs and outputs in physical terms

b. based on analysis and opinions gathered from various departments

A decision model involves a(n) ________. a. informal method of making a choice at the lower level management using sensitivity analysis b. formal method of making a choice that often involves both quantitative and qualitative analyses c. informal method of making a choice which is discussed in detailed in the financial reports d. formal method of making a choice at the lower level management using advanced management techniques such as balance scorecard

b. formal method of making a choice that often involves both quantitative and qualitative analyses

Producing on schedule, quality of supplier products or services, reliability, along with costs are all important considerations when____ a. when deciding to insource b. making outsourcing decisions c. when executing right-shoring d. making decisions based on quantitative factors

b. making outsourcing decisions

Opportunity costs is defined as ________. a. the cost of manufacturing a one-time-only special order when a firm has excess capacity to make more products b. the contribution to operating income that is forgone by not using a limited resource in its next-best alternative use c. the sum of variable and fixed costs in a particular business function of the value chain, such as manufacturing costs or marketing costs d. the sum of variable and fixed costs in all business functions of the value chain, such as manufacturing costs or marketing costs

b. the contribution to operating income that is forgone by not using a limited resource in its next-best alternative use

Which of the following best defines the term: product life cycle? a. the time span between when the company begins the initial R&D on a product till the time when the first unit is sold. b. the span of time from initial R&D on a product to when the customer service and support for the product is no longer offered c. the time span between when the company begins the initial R&D on a product till the time when the last unit is sold d. the span of time from when the first unit of the product is sold until the last unit of the product is sold

b. the span of time from initial R&D on a product to when the customer service and support for the product is no longer offered

Which of the following is true of long-run pricing? a. It is fixed at a level that recovers the variable cost of the company and a pre-determined profit markup. b. It is generally a function of the market factors and the cost involved in production is generally not a consideration. c. It is a strategic decision designed to build long-run relationships with customers based on stable and predictable prices. d. It is based only on internal requirements like cost and estimated rate of return as in the long run these requirements are the driving factors of any organization.

c. It is a strategic decision designed to build long-run relationships with customers based on stable and predictable prices.

A product cost is composed of the following: Direct materials $11 Direct labor $3 Manufacturing overhead $8 The product sells for $40 and a 15% commission is paid to a salesperson for every unit sold. Management accountants also estimate that storage cost per unit averages $0.75 per unit. What is the full cost of the product? a. $14 b. $22 c. $28.75 d. $28.00

c. $28.75

Crandle Manufacturers Inc. is approached by a potential new customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $170 Direct labor $90 Manufacturing support $135 Marketing costs $85 Fixed costs: Manufacturing support $145 Marketing costs $75 Total costs $700 Markup (40%) $280 Targeted selling price $980 What is the contribution margin per unit? a. $220 b. $280 c. $500 d. $700

c. $500

Which of the following is true of value engineering? a. It is the process of building a new product by first determining the selling price of the product. b. It is the process by which a company analyzes its own process to reduce cost. c. It is the process by which a systematic evaluation of all aspects of the value chain, with the objective of reducing costs and achieving a predetermined quality level. d. It is the process by which the competitor's products are disassembled and analyzed.

c. It is the process by which a systematic evaluation of all aspects of the value chain, with the objective of reducing costs and achieving a predetermined quality level.

Which of the following is a cost that, if eliminated, would reduce the actual or perceived value or utility (usefulness) customers experience from using the product or service? a. Non-value-added cost b. Discretionary cost c. Value-added cost d. Committed cost

c. Value-added cost

When making decisions ________. a. qualitative factors are not relevant as they can't be quantified b. more weight should be given to quantitative factors c. appropriate weight must be given to both quantitative and qualitative factors d. quantitative factors are relevant but qualitative factors are rarely relevant

c. appropriate weight must be given to both quantitative and qualitative factors

Sunk costs ________. a. are future costs for decision making b. are avoidable costs c. are irrelevant for decision making d. are foregone contribution by not using a limited resource in its next-best alternative use

c. are irrelevant for decision making

With a constraining resource, managers should choose the product with the ________. a. lowest contribution margin per unit of the constraining resource b. highest sales price c. highest contribution margin per unit of the constraining resource d. highest gross profit

c. highest contribution margin per unit of the constraining resource

Which of the following focuses on these five factors: competitors, potential entrants to the market, equivalent products, bargaining power of customers, and bargaining power of suppliers? a. balanced scorecard b. product differentiation analysis c. industry analysis d. business process reengineering

c. industry analysis

Which of the following is an example of nonlinear cost function? a. variable-cost functions b. fixed-cost functions c. learning curves d. mixed cost functions

c. learning curves

Goodness-of-fit measures how well the predicted values in a cost estimating equation ________. a. match the cost driver b. determine the level of activity c. match the actual cost observations d. rely on the independent variable

c. match the actual cost observations

A cost function is a a. process of calculating present value of projected cash flows b. process of allocating costs to cost centers or cost objects c. mathematical description of how a cost changes with changes in the level of an activity relating to that cost d. is a very thorough and detailed way to identifying a cost object when there is a physical relationship between inputs and outputs

c. mathematical description of how a cost changes with changes in the level of an activity relating to that cost

Determining which products should be produced when the plant is operating at full capacity is referred to as a(n) ________. a. outsourcing analysis b. total alternative approach c. product-mix decision d. short-run focus decision

c. product-mix decision

Which of the following costs always differ among future alternatives? a. fixed costs b. historical costs c. relevant costs d. variable costs

c. relevant costs

The theory of constraints (TOC) defines throughput margin as ________. a. operating income minus the direct material costs of the goods sold b. operating income minus the direct labor costs of the goods sold c. revenues minus the direct material costs of the goods sold d. revenues minus the full costs of the goods sold

c. revenues minus the direct material costs of the goods sold

A cost driver should be measurable and have an economically plausible relationship with the dependent variable which means: a. that the cost driver can be identified in an economically feasible way b. that the relationship is based on correlation c. that the relationship is based on a cause -and-effect criterion and makes economic sense to management d. that the relationship must be based on a physical relationship

c. that the relationship is based on a cause -and-effect criterion and makes economic sense to management

As a general rule of economics, companies should only produce and sell units as long as ________. a. there is customer demand for the product b. there is a relatively small supply of the product when compared to past operating periods c. the revenue from an additional unit exceeds the cost of producing it d. there is a generous supply of low-cost direct materials

c. the revenue from an additional unit exceeds the cost of producing it

Companies must always examine their pricing ________. a. based on the supply of the product b. based on the full cost of producing the product and price to make a profit c. through the eyes of their customers and then manage costs to produce a profit d. based on the GAAP cost of producing the product and then add a mark-up

c. through the eyes of their customers and then manage costs to produce a profit

Quantitative analysis methods estimate cost functions ________. a. using the time-and-motion studies b. based on analysis and opinions gathered from various departments c. using a formal mathematical method to fit cost functions to past data observations d. using the pooling of knowledge from each value chain function

c. using a formal mathematical method to fit cost functions to past data observations

Zolas' Heaters is approached by Ms. Leila, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Zolas' Heaters has excess capacity. The following per unit data apply for sales to regular customers: Direct materials $420 Direct manufacturing labor $100 Variable manufacturing support $70 Fixed manufacturing support $200 Total manufacturing costs $790 Markup (30% of total manufacturing costs) $237 Estimated selling price$1027 If Ms. Leila wanted a long-term commitment, and not a one-time-special order, for supplying this product, calculate the most likely price to be quoted assuming the markup remains the same? a. $790 b. $590 c. $520 d. $1027

d. $1027

A product costs $100 to manufacture and $40 to market and $20 to distribute (ship to customers.) R&D costs are allocated at $30 per unit. Based on a targeted rate of return, manager uses a mark-up of 60%. What is the markup component based on a Cost-Plus pricing approach? a. $60 b. $84 c. $96 d. $114

d. $114

Feedback on how a company is doing from the perspectives of financial, customer, internal business processes, and learning and growth. a. Master budget b. Product differentiation c. Differential report d. Balanced scorecard

d. Balanced scorecard

Which of the following statements best define a product differentiation strategy? a. It describes how an organization can increase customer base by differentiating its' product prices from its competitors. b. It is an organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control. c. It describes how an organization can decrease product prices by differentiating its' raw materials from its competitors. d. It is an organization's ability to offer products or services its customers perceive to be superior and unique relative to the products or services of its competitors.

d. It is an organization's ability to offer products or services its customers perceive to be superior and unique relative to the products or services of its competitors.

Magic Corporation manufactures water toys. It plans to grow by producing high-quality water toys that are delivered in a timely manner. There are a number of other manufacturers who produce similar water toys. Magic believes that continuously improving its manufacturing processes and re-engineering processes to downsize and eliminate excess capacity are critical to implementing its strategy. Which of the following best describes Magic's strategy? a. product differentiation b. product leadership c. cost differentiation d. cost leadership

d. cost leadership

The cost to produce Part A was $20 per unit in 2013 and in 2014 it has increased to $22 per unit. In 2014, Supplier ABC has offered to supply Part A for $18 per unit. For the make-or-buy decision ________. a. incremental revenues are $4 per unit b. incremental costs are $2 per unit c. net relevant costs are $2 per unit d. differential costs are $4 per unit

d. differential costs are $4 per unit

Which of the following efforts would most likely yield the greatest re-engineering benefits? a. focusing on a single activity to determine if it is necessary b. decreasing quantity of output produced to increase total factor productivity c. increasing costs of all inputs used to increase total factor productivity d. focusing on entire processes and elimination of unnecessary activities and task

d. focusing on entire processes and elimination of unnecessary activities and task

With a step fixed-cost function ________. a. the cost varies with the changes in the activity b. fixed cost is often approximated with a continuous variable-cost function c. fixed cost changes proportionally with the level of activity d. the cost remains the same over wide ranges of the activity in each relevant range

d. the cost remains the same over wide ranges of the activity in each relevant range