ARE 119 Ch 14

The Hassan Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $20,000,000 bond issuance, the Electric Mixer Division utilized $14,000,000 and the Electric Lamp Division utilized $6,000,000 for expansion. Interest costs on the bond totaled $1,500,000 for the year. What amount of interest costs should be allocated to the Electric Mixer Division? a. $450,000 b. $1,050,000 c. $4,200,000 d. $14,000,000 What amount of interest costs should be allocated to the Electric Lamp Division? a. $450,000 b. $1,050,000 c. $4,200,000 d. $6,000,000 The above interest costs would be considered a(n) a. output unit-level cost. b. facility-sustaining cost. c. product-sustaining cost. d. batch-level cost.

$14,000,000/ $20,000,000 x $1,500,000= $1,050,000 $6,000,000 / $20,000,000 x $1,500,000 = $450,000 c

(Actual sales quantity in units - Static budget sales quantity in units) x Budgeted contribution margin per unit = a. the sales-volume variance. b. the sales-mix variance. c. the sales-quantity variance. d. the market-share variance.

a

95. The sales-mix variance will be unfavorable when a. the actual sales mix shifts toward the less profitable units. b. the composite unit for the actual mix is greater than for the budgeted mix. c. actual unit sales are less than budgeted unit sales. d. the actual contribution margin is greater than the static-budget contribution margin.

a

A common finding in many studies is that a high percentage of operating income is a. contributed by a small number of customers. b. contributed to evenly by most customers. c. the result of high discounting. d. the result of cooperative efforts by many low-volume customers.

a

A shift towards a mix of products with a lower contribution-margin per unit will MOST likely result in a. an unfavorable sales-mix variance. b. an unfavorable sales-quantity variance. c. a favorable sales-mix variance. d. a favorable sales-quantity variance.

a

An unfavorable sales-mix variance would MOST likely be caused by a. a new competitor providing better service in the high-margin product sector. b. a competitor having distribution problems with high-margin products. c. the company offering low-margin products at a higher price. d. the company experiencing quality-control problems that get negative media coverage of low-margin products.

a

Homogeneous cost pools lead to a. more accurate costs of a given cost object. b. more resources being assigned to that cost object. c. the need for more cost drivers. d. both (a) and (c).

a

Indirect costs a. often comprise a large percentage of overall costs assigned to a cost object. b. specifically exclude marketing costs. c. cannot be used for external reporting. d. are treated as period costs and not as product costs.

a

More insight into the sales-volume variance can be gained by subdividing it into a. the sales-mix variance and the sales-quantity variance. b. the market-share variance and the market-size variance. c. the flexible-budget variance and the market-size variance. d. a cost hierarchy.

a

R&D costs are used for which purpose of cost allocation? a. To provide information for economic decisions b. To report to external parties when using generally accepted accounting principles c. To calculate costs of a government contract d. All of the above purposes

a

The MOST likely reason for NOT allocating corporate costs to divisions include that a. these costs are not controllable by division managers. b. these costs are incurred to support division activities, not corporate activities. c. division resources are already used to attain corporate goals. d. divisions receive no benefits from corporate costs.

a

To guide cost allocation decisions, the fairness or equity criterion a. is the criterion often cited in government contracts. b. is superior when the purpose of cost allocation is for economic decisions. c. is used more frequently than the other criteria. d. is the primary criterion used in activity-based costing.

a

Which purpose of cost allocation is used to decide on the selling price for a customized product or service? a. To provide information for economic decisions b. To motivate managers and other employees c. To justify costs or compute reimbursement d. To measure income and assets for reporting to external parties

a

73. Costs incurred to process orders would MOST likely be classified as a. a customer output unit-level cost. b. a customer batch-level cost. c. a customer-sustaining cost. d. a corporate-sustaining cost.

b

83. If deciding whether to eliminate a distribution channel, allocating corporate-sustaining costs to distribution channels a. helps define cost reduction possibilities. b. gives the misleading impression of potential cost savings. c. identifies administrative inefficiencies. d. evaluates the effectiveness of sales personnel.

b

84. When corporate-sustaining costs are fully allocated to distribution channels then the sum of the distribution-channel operating incomes a. is less than company-wide operating income. b. is equal to company-wide operating income. c. is greater than company-wide operating income. d. cannot be determined.

b

A challenge to using cost-benefit criteria for allocating costs is that a. the costs of designing and implementing complex cost allocations are not readily apparent. b. the benefits of making better-informed pricing decisions are difficult to measure. c. cost systems are being simplified and fewer multiple cost-allocation bases are being used. d. the costs of collecting and processing information keep spiraling upward.

b

A favorable sales-quantity variance would MOST likely be caused by a. a new competitor providing better service in the high-margin product sector. b. a competitor having distribution problems with high-margin products. c. the company offering low-margin products at a higher price. d. the company experiencing quality-control problems that get negative media coverage of low-margin products.

b

Any item for which a separate measurement of cost is desired is known as a. cost allocation. b. a cost object. c. a direct cost. d. an indirect cost.

b

Corporate administrative costs allocated to a division cost pool are MOST likely a. output unit-level costs. b. facility-sustaining costs. c. product-sustaining costs. d. batch-level costs.

b

Customers making large contributions to the profitability of the company should a. be treated the same as other customers since all customers are important. b. receive a higher level of attention from the company than less profitable customers. c. be charged higher prices for the same products than less profitable customers. d. not be offered the volume-based price discounts offered to less profitable customers.

b

Dropping an unprofitable customer will a. eliminate long-run costs assigned to that customer. b. eliminate most short-run costs assigned to that customer. c. decrease long-run profitability. d. increase the potential to cross-sell other products that are more desirable.

b

Loss-causing customers a. should be eliminated. b. should be evaluated for ways to become profitable customers. c. should be retained because each customer adds to long-run profitability. d. do not exist because additional customer sales always increase profits.

b

The MOST likely reason for allocating all corporate costs to divisions include that a. division managers make decisions that ultimately control corporate costs. b. divisions receive benefits from all corporate costs. c. the hierarchy of costs promotes cost management. d. it is best to use multiple cost objects.

b

The budgeted contribution margin per composite unit for the budgeted mix can be computed by a. dividing the total budgeted contribution margin by the actual total units. b. dividing the total budgeted contribution margin by the total budgeted units. c. dividing the actual total contribution margin by the total actual total units d. dividing the actual total contribution margin by the total budgeted units.

b

The direct materials mix variance is the: A) average of the direct materials mix variances for each input B) sum of the direct materials mix variances for each input C) difference between the direct materials mix variances for each input D) multiple of the direct materials mix variances for each input

b

The direct materials mix variance will be favorable when: A) the flexible-budget contribution margin is greater than the actual contribution margin B) the actual direct materials input mix is less expensive than the budgeted direct materials input mix C) the actual quantity of total inputs used is greater than the flexible budget for total inputs D) actual unit sales are less than budgeted unit sales

b

The greater the degree of homogeneity, a. the greater the number of needed cost pools. b. the fewer the number of needed cost pools. c. the less accurate the costs of a particular cost object. d. the greater the variety of cause-and-effect relationships with the cost driver.

b

The sales-quantity variance results from a difference between a. the actual sales mix and the budgeted sales mix. b. the actual quantity of units sold and the budgeted quantity of unit sales in the static budget. c. actual contribution margin and the budgeted contribution margin. d. actual market size in units and the budgeted market size in units.

b

The sales-quantity variance will be unfavorable when a. the composite unit for the actual mix is greater than for the budgeted mix. b. actual unit sales are less than budgeted unit sales. c. the actual contribution margin is greater than the static-budget contribution margin. d. the actual sales mix shifts toward the less profitable units.

b

The static-budget variance will be favorable when a. actual unit sales are less than budgeted unit sales. b. the actual contribution margin is greater than the static-budget contribution margin. c. the actual sales mix shifts toward the less profitable units. d. the composite unit for the actual mix is greater than for the budgeted mix.

b

To allocate corporate costs to divisions, the allocation base used should a. be an output unit-level base. b. have the best cause-and-effect relationship with the costs. c. combine administrative costs and human resource management costs. d. allocate the full costs.

b

To guide cost allocation decisions, the cause-and-effect criterion a. is used less frequently than the other criteria. b. is the primary criterion used in activity-based costing. c. is a difficult criterion on which to obtain agreement. d. may allocate corporate salaries to divisions based on profits.

b

Which purpose of cost allocation is used to encourage sales representatives to push high-margin products or services? a. To provide information for economic decisions b. To motivate managers and other employees c. To justify costs or compute reimbursement d. To measure income and assets for reporting to external parties

b

75. The cost of visiting customers would MOST likely be classified as a. a customer output unit-level cost. b. a customer batch-level cost. c. a customer-sustaining cost. d. a corporate-sustaining cost.

c

All of the following illustrate purposes for allocating costs to cost objects EXCEPT a. to provide information for economic decisions. b. to motivate managers and employees. c. to determine a selling price the market will bear. d. to measure income and assets for reporting to external parties.

c

Corporate-sustaining costs should be allocated a. to motivate changes in customer behavior. b. to evaluate distribution-channel managers. c. to determine the selling price that will cover all costs. d. to identify the most profitable customers.

c

Costs which are not economically feasible to trace but are related to a cost object are known as a. fixed costs. b. direct costs. c. indirect costs. d. variable costs.

c

More insight into the efficiency variance for direct materials can be gained by subdividing it into the direct materials: A) mix and volume variances B) market-share and market-size variances C) mix and yield variances. D) price and efficiency variances

c

More insight into the static-budget variance can be gained by subdividing it into a. the sales-mix variance and the sales-quantity variance. b. the market-share variance and the market-size variance. c. the flexible-budget variance and the sales-volume variance. d. a cost hierarchy.

c

Not allocating some corporate costs to divisions and products results in a. an increase in overall corporate profitability. b. the sum of individual product profitability being less than overall company profitability. c. the sum of individual product profitability being greater than overall company profitability. d. a decrease in overall corporate profitability.

c

Some companies only allocate corporate costs to divisions that a. are planned and under the control of division managers. b. are output unit-level costs. c. are perceived as causally related to division activities. d. are direct costs.

c

The materials yield variance will be unfavorable when: A) the flexible-budget contribution margin is greater than the actual contribution margin B) the actual direct materials input mix is less expensive than the budgeted direct materials input mix C) the actual quantity of total inputs used is greater than the flexible budget for total inputs D) actual unit sales are less than budgeted unit sales

c

The sales-mix variance results from a difference between the a. actual market share and the budgeted market share. b. actual contribution margin and the budgeted contribution margin. c. budgeted contribution margin per composite unit for the actual mix and the budgeted contribution margin per composite unit for the budgeted mix. d. actual market size in units and the budgeted market size in units.

c

To guide cost allocation decisions, the ability to bear criterion a. is likely to be the most credible to operating personnel. b. allocates costs in proportion to the benefits received. c. results in subsidizing products that are not profitable. d. is the criterion often cited in government contracts.

c

When individual activities within a cost pool have a similar relationship with the cost driver, those costs a. need to be reallocated. b. need multiple cost drivers. c. are considered a homogeneous cost pool. d. are considered an allocated cost pool.

c

Which cost-allocation criterion is MOST likely to subsidize poor performers at the expense of the best performers? a. The fairness or equity criterion b. The benefits-received criterion c. The ability to bear criterion d. The cause-and-effect criterion

c

70. To improve customer profitability, companies should track a. only the final invoice price of a sale. b. the volume of the products purchased by each customer. c. discounts taken by each customer. d. both (b) and (c).

d

71. To improve customer profitability, companies should a. strictly enforce their volume-based price discounting policy. b. track discounts by customer. c. track discounts by sales person. d. both (b) and (c).

d

74. Top management and general administration costs would MOST likely be classified as a. a customer output unit-level cost. b. a customer batch-level cost. c. a customer-sustaining cost. d. a corporate-sustaining cost.

d

82. The allocation of corporate-sustaining costs is useful for a. evaluating the performance of salespersons with individual customer accounts. b. motivating distribution-channel management. c. focusing on the cause-and-effect relationships with the cost-allocation bases. d. none of the above.

d

88. Customers are more valuable when they are all EXCEPT a. well known in the community. b. expected to continue to do business with a company. c. in an industry with high-growth potential. d. require special attention on a regular basis.

d

A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of a. different types of cost drivers. b. different benefits-received relationships. c. different levels of cause-and-effect relationships. d. all of the above.

d

Corporate overhead costs can be allocated a. using a single cost pool. b. to divisions using one cost pool and then reallocating costs to products using multiple cost pools. c. using numerous individual corporate cost pools. d. using any of the above methods.

d

Identifying homogeneous cost pools a. requires judgment and should be reevaluated on a regular basis. b. should include the input of management. c. should include a cost-benefit analysis. d. should include all of the above.

d

More insight into the flexible-budget variance for direct materials can be gained by subdividing it into the direct materials: A) mix and volume variances B) market-share and market-size variances C) mix and yield variances D) price and efficiency variances

d

Price discounts are influenced by a. the volume of product purchased. b. a desire to sell to a customer in an area with high-growth potential. c. negotiating skills of the sales person. d. all of the above.

d

The costs of all six value-chain functions should be included when determining a. whether to add a new product line. b. the selling price of a service. c. whether to make or buy a component part from another manufacturer. d. all of the above.

d

The sales-mix variance will be favorable when a. the actual contribution margin is greater than the static-budget contribution margin. b. actual unit sales are less than budgeted unit sales. c. the actual sales mix shifts toward the less profitable units. d. the composite unit for the actual mix is greater than for the budgeted mix.

d

To guide cost allocation decisions, the benefits-received criterion a. generally uses the cost driver as the cost allocation base. b. results in subsidizing products that are not profitable. c. is the primarily criterion used in activity-based costing. d. may use an allocation base of division revenues to allocate advertising costs.

d

To manage setup costs, a corporation might focus on a. the number of setup-hours. b. the number of units included in each production run. c. the batch-level costs incurred per setup-hour. d. both (a) and (c).

d

Which cost-allocation criterion is appropriate when making an economic decision? a. The fairness or equity criterion b. The ability to bear criterion c. The cause-and-effect criterion d. Any of the above criteria are appropriate

d