Cost 432 Midterm
Determine whether this statement is true or false. "In a normal-costing system, the amounts in the Manufacturing Overhead Control account will always equal the amounts in the Manufacturing Overhead Allocated account." A. The statement is true. B. The statement is false.
B
When using the high-low method, should you base the high and low observations on the dependent variable or on the cost driver? A. Dependent variable B. Cost driver
b
"There is no such thing as a fixed cost. All costs can be 'unfixed' given sufficient time." Do you agree? What is the implication of your answer for CVP analysis? A. Once an item is classified as either fixed or variable, it cannot be changed. CVP analysis depends upon these classifications remaining the same; therefore, any change would cause the analysis to lose its usefulness. B. Many items classified as a fixed in the short run may become variable costs with a longer time horizon (period of time for a decision). CVP is not made any less relevant when the time horizon lengthens. C. Items classified as fixed in the short run may become variable with a longer time horizon (period of time for a decision). CVP analysis depends upon these classifications remaining the same, though. Therefore, any change would cause the analysis to lose its usefulness. D. Once an item is classified as either fixed or variable, it cannot be changed. The classification of items as either fixed or variable has no impact on CVP analysis; therefore, the decision is irrelevent anyway.
b many items CVP is not made any less relevant when the time horizon lengthens
CHAPTER 10 CONNECT QUIZ What assumption(s) are frequently made when estimating a cost function? A. Variations in the level of a single activity explain the variations in the related total costs. B. Cost behavior is approximated by a linear function within the relevant range. C. Both of the above. D. Neither of the above.
c
Choose an example of how a manager can increase variable costs while decreasing fixed costs. A. Hiring a subcontractor to do repairs on an annual retainer basis rather than on a per-visit basis. B. Changing a sales force compensation plan from a percent of sales dollars to a fixed salary. C. Subcontracting a component to a supplier on a per-unit basis to avoid purchasing a machine with a high fixed depreciation cost. D. None of the above.
c Subcontracting a component to a supplier on a per-unit basis to avoid purchasing a machine with a high fixed depreciation cost.
Select the assumptions underlying CVP analysis. Choose the four assumptions underlying CVP analysis by selecting "Yes" if the statement is an assumption or "No" if the statement is not an assumption: 1. Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units sold. 2. Total costs can be separated into a fixed component that does not vary with the units sold and a component that is variable with respect to the units sold. 3. Fixed costs only include the direct fixed costs and do not include indirect fixed costs of a product (or service). 4. When represented graphically, the behavior of total revenues and total costs are linear (represented as a straight line) in relation to units sold within a relevant range and time period. 5. The number of units sold is one of many cost drivers. 6. The selling price, variable cost per unit, and fixed costs are known and constant.
1. yes 2. yes 3. no 4. yes 5. no 6. yes
CHAPTER 3 QUIZ Cost-volume-profit analysis examines A. the "what-if" technique that managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes. B. the behavior of total revenues, total costs, and operating income as changes occur in the output level, selling price, variable cost per unit, or fixed costs of a product. C. the difference between the selling price and variable cost per unit. D. how much a company can charge for its products over and above the cost of acquiring or producing them.
b
Identify three different debit entries to the Work-in-Process Control T-account under normal costing. A. direct materials purchased, completion and transfer of jobs to finished goods, sale of completed goods B. direct materials used, direct manufacturing labor billed to a job, manufacturing overhead allocated to a job C. direct materials purchased, indirect manufacturing labor paid to employees, manufacturing overhead incurred D. direct materials purchased, manufacturing overhead incurred, completion and transfer of jobs to finished goods
b direct materials used, direct manufacturing labor billed to a job, manufacturing overhead allocated to a job
Identify three major source documents used in job-costing systems. A. accounts receivable aging report, accounts payable aging report, and inventory control report B. job cost record (sheet), materials requisition record, and labor time record C. general journal, general ledger, and trial balance D. balance sheet, income statement, and cash flow statement
b """the word "Sheet" and "record" job cost record (sheet), materials requisition record, and labor time record
Select examples of two cost objects in companies using job costing. A. cost pool and cost allocation base B. direct costs and indirect costs C. products or jobs and responsibility centers or departments D. fixed costs and variable costs
c
Distinguish between actual costing and normal costing. A. Actual costing and normal costing differ in their use of actual or budgeted direct-cost rates. B. Actual costing and normal costing differ in their use of actual or budgeted quantities of cost-allocation bases. C. Actual costing and normal costing differ in their use of actual or budgeted quantities of direct-cost inputs. D. Actual costing and normal costing differ in their use of actual or budgeted indirect-cost rates.
d use of actual or budgeted indirect-cost rates.
What three guidelines help management accountants provide the most value to managers? A. (1) Employ a cost-benefit approach, (2) Recognize behavioral and technical considerations, and (3) Apply the "different costs for different purposes" notion B. (1) Planning, (2) Control, and (3) Performance evaluation and learning C. (1) Understand the organization structure, (2) Employ a cost-benefit approach, and (3) Maintain integrity and credibility in every aspect of the job D. (1) Decision-making, (2) Planning, and (3) Control
A. (1) Employ a cost-benefit approach, (2) Recognize behavioral and technical considerations, and (3) Apply the "different costs for different purposes" notion
Three criteria for evaluating cost functions and choosing cost drivers are: A. Economic plausibility, goodness of fit, slope of regression line B. Economic plausibility, goodness of fit, the speed with which cost estimates can be determined C. Goodness of fit, slope of regression line, the speed with which cost estimates can be determined D. None of the above
a "slope of regression line"
Distinguish between operating income and net income. A. Net income includes cost of goods sold in its calculation, whereas, operating income does not. B. Operating income takes into account income taxes, whereas, net income does not take income taxes into account. C. Net income takes into account income taxes, whereas, operating income does not take income taxes into account. D. Operating income includes operating costs in its calculation, whereas, net income does not.
c
Factors affecting the classification of a cost as direct or indirect include A. materiality of the cost, available information-gathering technology, and design of operations. B. cost behavior patterns, cost drivers, and relevant ranges. C. materials, labor, and factory overhead. D. unit costs, inventory production stage, and contractual agreements.
A materiality of the cost, available information-gathering technology, design of operations.
"Management accounting deals only with costs." Do you agree? Explain. A. No. Management accounting does not use cost information, it only records financial activities of the company in accordance with GAAP. B. No. Management accounting only analyzes the manufacturing of products for customers in order to assess product and customer profitability. C. No. Management accounting measures, analyzes, and reports financial and non-financial information that helps managers define the organization's goals, and make decisions to fulfill them. D. Yes. Management accounting only measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization.
C. No. Management accounting measures, analyzes, and reports financial and non-financial information that helps managers define the organization's goals, and make decisions to fulfill them.
What is the advantage of using computerized source documents to prepare job-cost records? A. accuracy of the recordslong dashincorrect recording of amounts, incorrect job numbers, materials being "borrowed" for another job B. timeliness of the recordslong dashensuring that the documents are available when needed C. safeguarding the records from events such as theft or fire D. none of the above
a accuracy of the recordslong dashincorrect incorrect job numbers materials being "borrowed" for another job
Identify the appropriate way(s) to dispose of under- or overallocated overhead costs. A. (1) Proration to all operating expense accounts, (2) Year-end write-off to miscellaneous expense, (3) Restatement of all overhead entries using budgeted indirect costs rates rather than actual indirect cost. B. (1) Proration to work in process, finished goods and cost of good sold, (2) Year-end write-off to cost of goods sold, (3) Restatement of all overhead entries using actual indirect costs rates rather than budgeted indirect cost rates. C. (1) Proration to materials inventory, finished goods and cost of good sold, (2) Year-end write-off to work in process inventory, (3) Restatement of all overhead entries using budgeted indirect costs rates rather than actual indirect cost. D. No entry is required to dispose of over or under-allocated overhead.
b Proration to work in process
How does a job-costing system differ from a process-costing system? A. A job-costing system assigns costs to distinct units; a process-costing system assigns costs to masses of similar units. B. A job-costing system assigns costs to masses of similar units; a process-costing system assigns costs to distinct units. C. A job-costing system allocates indirect costs to products; a process-costing system does not allocate indirect costs to products. D. A process-costing system allocates indirect costs to products; a job-costing system does not allocate indirect costs to products.
c A job-costing system allocates indirect costs to products
Select the four approaches to estimating a cost function: -Account analysis method -Conference method -Industrial engineering method -Quantitative analysis of current or past relationships
correct!
CHAPTER 4 CONNECT QUIZ Define cost pool, cost tracing, cost allocation, and cost-allocation base: Cost pool = Cost tracing = Cost allocation = Cost-allocation base =
1. a grouping of individual indirect cost items 2. the assigning of direct costs to the chosen cost object 3. the assigning of indirect costs to the chosen cost object. 4. a factor that links in a systematic way an indirect cost or group of indirect costs to a cost object.
"Knowledge of technical issues such as computer technology is a necessary but not sufficient condition to becoming a successful management accountant." Do you agree? Why? A. Agree. A successful management accountant requires a CMA certificate and a CFA certificate in addition to proficient technical skills. B. Agree. A successful management accountant requires a CMA certificate as well as technical skills. C. Agree. A successful management accountant requires general business skills and people skills as well as technical skills. D. Disagree. Virtually all of the management accountant's role is technical-based. Thus, knowledge of technical issues such as computer technology is a necessary and sufficient condition to becoming a successful management accountant.
C. Agree. A successful management accountant requires general business skills and people skills as well as technical skills.
A management accountant can help formulate a strategy by A. providing information about the cost of a product which will help to determine which products to offer. B. providing information about historical financial results. C. measuring business transactions that are based on generally accepted accounting principles (GAAP), which will then determine financial figures that effect managers' compensation. D. providing information about the sources of competitive advantage, such as the cost, productivity, or efficiency advantage of their company relative to competitors.
D. providing information about the sources of competitive advantage, such as the cost, productivity, or efficiency advantage of their company relative to competitors.
"High correlation between two variables means that one is the cause and the other is the effect." Do you agree? Explain. A. Yes, high correlation always means the variables have a cause and effect relationship. B. No, there must be a contractual arrangement to have a cause and effect relationship. C. No, you must also consider economic plausability before determining there is a cause and effect relationship. D. No, high correlation means there is no cause and effect relationship between variables.
c
Explain the term supply chain and its importance to cost management. A. Supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the same organization or in other organizations. Cost management is most effective when it integrates and coordinates activities across all companies in the supply chain as well as across each business function in an individual company's value chain. B. Supply chain describes the sequence of business functions in which customer usefulness is added to products or services. Cost management is most effective when it integrates and coordinates activities across each business function in an individual company's value chain. C. Supply chain describes the sequence of business functions in which customer usefulness is added to products or services. Cost management is most effective when it integrates and coordinates activities across all companies in the supply chain as well as across each business function in an individual company's value chain. D. Supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers within an individual organization. Cost management is most effective when it integrates and coordinates activities across each business function in an individual company's value chain.
"flow of goods" "it integrates and coordinates activities across each business function" D. Supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the same organization or in other organizations. Cost management is most effective when it integrates and coordinates activities across all companies in the supply chain as well as across each business function in an individual company's value chain.
The business functions in the value chain include: A. Identifying the problem and uncertainties, Obtaining information, Making predictions about the future, Making decisions by choosing among alternatives, and Implementing the decision. B Manufacturing, Packaging, and Distribution. C. Research and development, Design of products and processes, Production, Marketing, Distribution, and Customer service. This is the correct answer. D. Research and development, Making decisions by choosing among alternatives, Production, Distribution, and Customer service.
("design of products") D. Research and development, Design of products and processes, Production, Marketing, Distribution, and Customer service.
What are three common features of cost accounting and cost management? -Period costs are considered assets in the balance sheet when they are incurred and become cost of goods sold only when the product is sold. -Analyzing the relevant information for making decisions. -Obtaining information for planning and control and performance evaluation. -Direct material costs are also referred to as overhead costs or factory overhead costs. -Calculating the cost of products, services, and other cost objects.
-Analyzing the relevant information for making decisions. -Obtaining information for planning and control and performance evaluation. -Calculating the cost of products, services, and other cost objects.
Match the alternative linear cost function with the definition given: -A cost function in which total costs change in proportion to the changes in the level of activity in the relevant range. -A cost function in which total costs do not change with changes in the level of activity in the relevant range. -A cost function that has both fixed and variable elements. Total costs change but not in the proportion to the changes in the level of activity in the relevant range. choices: -Variable cost function -Mixed cost function -Fixed cost function
-Variable cost function -Fixed cost function -Mixed cost function
Match the correct definition with each of the following terms: Term & Definition 1. Contribution margin = 2. Contribution margin per unit = 3. Contribution margin percentage =
1. difference between total revenues and total variable costs 2. difference between selling price and variable cost per unit 3. contribution margin per unit divided by selling price
List the six steps in estimating a cost function on the basis of an analysis of a past cost relationship in the correct order. CICPEE Which step is typically the most difficult for the cost analyst?
1.Choose the dependent variable. 2.Identify the independent variable or cost driver. 3.Collect data on the dependent variable and driver. 4.Plot the data. 5.Estimate the cost function. 6.Evaluate the cost driver of the estimated cost function. Step 3
As a new controller, reply to this comment by a plant manager: "As I see it, our accountants may be needed to keep records for shareholders and Uncle Sam, but I don't want them sticking their noses in my day-to-day operations. I do the best I know how. No bean counter knows enough about my responsibilities to be of any use to me." A. Demonstrate to the plant manager a good knowledge of the technical aspects of the plant and spend some time on the plant floor speaking to plant personnel to get a better understanding of the facility. B. Emphasize that the plant manager cannot make accurate decisions without a controller to provide the proper guidance. C. Explain to the plant manager the importance of keeping tabs on production personnel to be sure they are following all the generally accepted accounting principles. D. Have the plant manager review the plant controllers resume and explain about the success with assisting of budgets and making sure plant managers do not exceed their budgets.
A. Demonstrate to the plant manager a good knowledge of the technical aspects of the plant and spend some time on the plant floor speaking to plant personnel to get a better understanding of the facility.
What steps should a management accountant take if established written policies provide insufficient guidance on how to handle an ethical conflict? A. (a) Discuss the problem with the immediate superior (except when it appears that the superior is involved). (b) Clarify relevant ethical issues by confidential discussion with an IMA Ethics Counselor or other impartial advisor. (c) Consult your own attorney as to legal obligations and rights concerning the ethical conflicts. B. (a) Discuss the problem with any manager. (b) Clarify relevant ethical issues by public discussions with the board of directors. (c) Consult local law enforcement officials. C. The management accountant need not take any further action if established written policies provide insufficient guidance on how to handle an ethical conflict. D. Discuss the problem only with the immediate superior. The management accountant need not take any further action if the supervisor does not take appropriate action.
A. (a) Discuss the problem with the immediate superior (except when it appears that the superior is involved). (b) Clarify relevant ethical issues by confidential discussion with an IMA Ethics Counselor or other impartial advisor. (c) Consult your own attorney as to legal obligations and rights concerning the ethical conflicts.
Name the four areas in which standards of ethical conduct exist for management accountants in the United States. What organization sets forth these standards? A. (1) Honesty, (2) Fairness, (3) Objectivity, and (4) Responsibility. These standards are set by the Institute of Management Accountants (IMA). B. (1) Competence, (2) Confidentiality, (3) Integrity, and (4) Credibility. These standards are set by the Institute of Management Accountants (IMA). C. (1) Competence, (2) Confidentiality, (3) Honesty, and (4) Fairness. These standards are set by Generally Accepted Auditing Standards (GAAS). D. (1) Honesty, (2) Fairness, (3) Integrity, and (4) Objectivity. These standards are set by the Council of Management Accountants (CMA).
B. (1) Competence, (2) Confidentiality, (3) Integrity, and (4) Credibility. These standards are set by the Institute of Management Accountants (IMA)
"Management accounting should not fit the straitjacket of financial accounting." Explain and give an example. A. Management accounting and financial accounting can use asset or liability measurement rules, such as present values or resale prices, whichever is more reasonable at the time. B. Management accounting does not have to comply with the same standards of financial accounting such as generally accepted accounting principles. C. Management accounting cannot include assets or liabilities with nicknames that are developed internally, which is allowed under GAAP. D. Management accounting does not allow managers to charge interest on owners' capital to help judge a division's performance, even though such a charge is required under GAAP.
B. Management accounting does not have to comply with the same standards of financial accounting such as generally accepted accounting principles.
Where does the management accounting function fit into an organization's structure? A. The external auditor is the chief management accounting executive. The external auditor reports to the internal auditor, a staff function. Companies also have business unit auditors or regional auditors who support regional managers in major geographic regions. B. The controller is the chief management accounting executive. The corporate controller reports to the chief financial officer, a staff function. Companies also have business unit controllers who support business unit managers or regional controllers who support regional managers in major geographic regions. C. The internal auditor is the chief management accounting executive. The internal auditor reports to the external auditor, a staff function. Companies also have business unit auditors or regional auditors who support regional managers in major geographic regions. D. The internal auditor is the chief management accounting executive. The internal auditor is the highest position within an organization. The internal auditor does not report to anyone.
B. The controller is the chief management accounting executive. The corporate controller reports to the chief financial officer, a staff function. Companies also have business unit controllers who support business unit managers or regional controllers who support regional managers in major geographic regions.
CHAPTER 1 CONNECT QUIZ How does management accounting differ from financial accounting? A. Management accounting measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. Financial accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. B. Management accounting measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles (GAAP). C. Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles (GAAP). D. Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization.
C. "measures and reports" Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles (GAAP).
CHAPTER 2 CONNECT QUIZ Define cost object and give three examples. A. A cost object is a cost incurred (historical or past cost), as distinguished from a budgeted cost, which is a predicted or forecasted cost (a future cost). Examples include materials, labor, and overhead. B. A cost object is a resource sacrificed or forgone to achieve a specific objective. Examples include direct materials, direct labor, and advertising. C. A cost object is the collection of cost data in some organized way by means of an accounting system. Examples include accumulated costs, overhead, and direct labor. D. A cost object is anything for which a separate measurement of costs is desired. Examples include a product, a service, and a customer.
D "anything for which a separate measurement of costs is desired." "Examples include a product, a service, and a customer."
How can management accountants help improve quality and achieve timely product deliveries? A. Management accountants help improve quality and achieve timely product deliveries by focusing on reporting to external parties such as investors, government agencies, banks, and suppliers. B. Management accountants analyze and evaluate the costs of only financial information, to correct any irregularities and provide faster customer service. C. Management accountants can improve quality by only reporting an organization's current quality controls and correct any irregularities. D. Management accountants analyze and evaluate the costs and benefits of both financial and non-financial information, to suggest new quality initiatives such as TQM or providing faster customer service.
D. Management accountants analyze and evaluate the costs and benefits of both financial and non-financial information, to suggest new quality initiatives such as TQM or providing faster customer service.
Distinguish planning decisions from control decisions. A. Planning decisions are budget oriented, where control decisions focus on financial reporting. B. Planning decisions focus on examining past performance and systemically exploring alternative ways to make better-informed decisions and plans in the future. Control decisions focus on taking actions that implement the planning decisions, deciding how to evaluate performance, and what related feedback to provide that will help future decision making. C. Planning decisions focus on organizational goals without consideration of past performance. Control decisions focus on predicting results under various alternative ways of achieving those goals, deciding how to attain the desired goals, and deciding how to evaluate performance. D. Planning decisions focus on selecting organization goals, predicting results under various alternative ways of achieving those goals, deciding how to attain the desired goals, and communicating the goals and how to attain them to the entire organization.Control decisions focus on taking actions that implement the planning decisions, deciding how to evaluate performance, and what related feedback to provide that will help future decision making.
D. Planning decisions focus on selecting organization goals, predicting results under various alternative ways of achieving those goals, deciding how to attain the desired goals, and communicating the goals and how to attain them to the entire organization.Control decisions focus on taking actions that implement the planning decisions, deciding how to evaluate performance, and what related feedback to provide that will help future decision making.
Define product cost. Describe three different purposes for computing product costs. A. A product cost is the sum of the costs assigned to a product for a specific purpose. Purposes for computing a product cost include (1) pricing and product mix decisions, (2) contracting with government agencies, and (3) preparing financial statements for external reporting under GAAP. B. A product cost is the sum of all manufacturing costs other than direct materials assigned to a product. Purposes for computing a product cost include (1) analyzing fluctuations in the non-material costs of a product, (2) product pricing decisions, and (3) preparing financial statements for internal reporting purposes. C. A product cost is the sum of all indirect costs assigned to a product. Purposes for computing a product cost include (1) valuing inventory, (2) product mix decisions, and (3) analyzing production efficiencies. D. A product cost is the sum of all direct material costs and direct labor costs assigned to a product. Purposes for computing a product cost include (1) choosing a supplier with competitive prices, (2) employee wage-rate analysis, and (3) analyzing fluctuations in material and labor costs.
a "(1) pricing and product mix decisions, (2) contracting with government agencies, and (3) preparing financial statements for external reporting under GAAP."
Describe the account analysis method for estimating a cost function. A. The account analysis method estimates cost functions by classifying cost accounts in the subsidiary ledger as variable, fixed, or mixed with respect to the identified level of activity. Typically, managers use qualitative, rather than quantitative, analysis when making these cost-classification decisions. B. The account analysis method uses a formal mathematical method to fit cost functions to past data observations. Excel is a useful tool for performing the account analysis method. C. The account analysis method estimates cost functions on the basis of analysis and opinions about costs and their drivers gathered from various departments of a company (purchasing, process engineering, manufacturing, employee relations, etc.). D. The account analysis method estimates cost functions by analyzing the relationship between inputs and outputs in physical terms.
a "Typically, managers use qualitative, rather than quantitative, analysis when making these cost-classification decisions."
Why must unit costs often be interpreted with caution? A. Unit costs are computed by dividing some amount of total costs by the related number of units. In many cases, the total costs include a fixed cost that will not change despite changes in the number of units. Therefore, it can be misleading to multiply the unit cost by activity or volume change to predict changes in total costs at different activity or volume levels. B. Unit costs include overtime premium and idle time charges. It can be erroneous, then, to multiply the unit cost by activity or volume change to predict changes in total costs at different levels of production efficiencies. C. Unit costs often fall outside of the relevant range of predicting total cost for an activity at different levels of activity or volume. When costs fall outside of the relevant range, the predictive nature of estimating the total cost may be impaired, and thus unit costs must be interpreted with caution. D. Units costs are related to a particular cost object, but cannot be traced to it in an economically feasible way. The assignment of units costs is much more subjective than the assignment of direct costs, and therefore, unit cost information should be interpreted with caution.
a "computed by dividing" "therefore, it can be misleading to multiply"
What is a cost driver? Give one example. A. A cost driver is a variable, such as the level of activity or volume, which causally affects total costs over a given time span. A change in the cost driver results in a change in the level of total costs. For example, the number of vehicles assembled is a driver of the costs of steering wheels on a motor-vehicle assembly line. B. A cost driver is a factor affecting direct or indirect cost classifications. For example, the availability of information-gathering technology is a driver as to whether certain low-cost materials used in the manufacturing process is considered a direct or indirect cost of producing a motor-vehicle. C. A cost driver is a cost that is related to a particular cost object but cannot be traced to it in an economically feasible way, such as the salary of a plant manager who oversees production of many different types of luxury cars produced at the same plant. D. A cost driver is a cost that changes in total in proportion to changes in the related level of total activity or volume. For example, the tons of steel needed to produce a vehicle is a driver of the total cost for that vehicle.
a "cost of steering wheels"
What is the difference between a linear and a nonlinear cost function? Give an example of each type of cost function. A. A linear cost function is a cost function where, within the relevant range, the graph of total costs versus the level of a single activity related to that cost is a straight line. An example of a linear cost function is a cost function for use of a videoconferencing line where the terms are a fixed charge of $10,000 per year plus a $2 per minute charge for line use. A nonlinear cost function is a cost function where, within the relevant range, the graph of total costs versus the level of a single activity related to that cost is not a straight line. Examples include economies of scale in advertising where an agency can double the number of advertisements for less than twice the costs, step-cost functions, and learning-curve-based costs. B. A linear cost function is a cost function where, within the relevant range, the graph of total costs versus the level of a single activity related to that cost is a straight line. Examples include economies of scale in advertising where an agency can double the number of advertisements for less than twice the costs, step-cost functions, and learning-curve-based costs. A nonlinear cost function is a cost function where, within the relevant range, the graph of total costs versus the level of a single activity related to that cost is not a straight line. Examples include a cost function for use of a telephone line where the terms are a fixed charge of $10,000 per year plus a $2 per minute charge for phone use. C. A linear cost function is a cost function where, within the relevant range, the graph of total costs versus the level of a single activity related to that cost is not a straight line. An example of a linear cost function is a cost function for use of a copier where the terms are a fixed lease payment of $1,000 per month plus a $0.01 per page charge for each copy. A nonlinear cost function is a cost function where, within the relevant range, the graph of total costs versus the level of a single activity related to that cost is a straight line. Examples include quantity discounts for material purchases for each 1,000 units of material purchased. The cost per unit of material will fall for each 1,000 unites purchased at a time. D. A linear cost function is a cost function where, within the relevant range, the graph of total costs versus the level of a single activity related to that cost is not a straight line. Examples include economies of scale in advertising where an agency can double the number of advertisements for less than twice the costs, step-cost functions, and learning-curve-based costs. A nonlinear cost function is a cost function where, within the relevant range, the graph of total costs versus the level of a single activity related to that cost is a straight line. An example of a linear cost function is a cost function for use of a videoconferencing line where the terms are a fixed charge of $10,000 per year plus a $2 per minute charge for line use.
a "fixed charge of $10,000 per year plus a $2 per minute charge for line use." "where an agency can double the number of advertisements for less than twice the costs, step-cost functions, and learning-curve-based costs."
Identify how manufacturing-, merchandising-, and service-sector companies differ from each other. A. Manufacturing-sector companies purchase materials and components and convert them into various finished goods, for example automotive companies and textile companies. Merchandising-sector companies purchase and then sell tangible products without changing their basic form, for example retail stores and distribution companies. Service-sector companies provide services or intangible products to their customers, for example legal advice or audits. B. Manufacturing-sector companies purchase materials and components and convert them into various finished goods, for example legal advice or audits. Merchandising-sector companies purchase and then sell tangible products without changing their basic form, for example automotive companies and textile companies. Service-sector companies provide services or intangible products to their customers, for example retail stores and distribution companies. C. Manufacturing-sector companies provide services or intangible products to their customers, for example legal advice or audits. Merchandising-sector companies purchase and then sell tangible products without changing their basic form, for example retail stores and distribution companies. Service-sector companies purchase materials and components and convert them into various finished goods, for example automotive companies and textile companies. D. Manufacturing-sector companies purchase and then sell tangible products without changing their basic form, for example retail stores and distribution companies. Merchandising-sector companies provide services or intangible products to their customers, for example legal advice or audits. Service-sector companies purchase materials and components and convert them into various finished goods, for example automotive companies and textile companies.
a "for example automotive companies and textile companies."
Identify the ways in which a house construction company may use job-cost information. A. (a) to divide the total costs of constructing all the houses by the total number of houses built to obtain an average cost of each house, and (b) to apply the average per-unit cost to each of the identical or similar houses built in that period B. (a) to determine the profitability of individual jobs, (b) to assist in bidding on future jobs, and (c) to evaluate professionals who are in charge of managing individual jobs C. (a) to report profit results to shareholders, and (b) to report taxable profits to tax authorities D. None of the above.
b bidding on future jobs
Choose the correct description of variable and fixed costs. A. A variable cost is related to a particular cost object and can be traced to it in an economically feasible way, such as the cost of steel in the manufacturing of a luxury car. A fixed cost is related to a particular cost object but cannot be traced to it in an economically feasible way, such as the salary of a plant manager who oversees production of many different types of luxury cars produced at the same plant. B. A variable cost changes in total in proportion to changes in the related level of total activity or volume, such as a sales commission that is a percentage of each sales revenue dollar. A fixed cost remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume, such as a fixed annual leasing cost of a machine. C. A variable cost is considered to be a unit cost, such as the per-attendee-cost of hiring a musical group to perform at an event. A fixed cost is considered to be a total cost, such as the total fee paid to the musical group for performing at the event. D. All of the above.
b cost changes in total in proportion
What is operating leverage? How is knowing the degree of operating leverage helpful to managers? A. It describes the measure of competitiveness long dash how much a company can charge for its products over and above the cost of acquiring them. Knowing the degree of operating leverage helps managers know how much of the company's revenues are available to cover fixed costs. B. It describes the effects that fixed costs have on changes in operating income as changes occur in units sold and contribution margin. Knowing the degree of operating leverage at a given level of sales helps managers calculate the effect of fluctuations in sales on operating income. C. It describes the quantity of output sold at which total revenues equal total costs. Knowing the degree of operating leverage helps managers avoid operating losses. D. It describes the amount by which budgeted (or actual) revenues exceed breakeven revenues. Knowing the degree of operating leverage helps managers know how far they can fall below budget before the breakeven point is reached and if they are in danger of suffering a loss.
b effects that fixed cost helps managers calculate the effect of fluctuation in sales
"In CVP analysis, gross margin is a less-useful concept than contribution margin." Do you agree? Explain briefly. A. No, gross margin calculations emphasize the distinction between fixed and variable costs. Contribution margin calculations emphasize the distinction between manufacturing and nonmanufacturing costs. Hence, gross margin is a more useful concept than contribution margin in CVP analysis. B. Yes, gross margin calculations emphasize the distinction between manufacturing and nonmanufacturing costs. Contribution margin calculations emphasize the distinction between fixed and variable costs. Hence, contribution margin is a more useful concept than gross margin in CVP analysis. C. No, gross margin calculations emphasize the distinction between manufacturing and nonmanufacturing costs. Contribution margin calculations emphasize the distinction between fixed and variable costs. Hence, gross margin is a more useful concept than contribution margin in CVP analysis. D. Yes, gross margin calculations emphasize the distinction between fixed and variable costs. Contribution margin calculations emphasize the distinction between manufacturing and nonmanufacturing costs. Hence, contribution margin is a more useful concept than gross margin in CVP analysis.
b yes between manufacturing and nonmanufacturing costs.
Describe the conference method for estimating a cost function. What are two advantages of this method? A. The conference method estimates cost functions by analyzing the relationship between inputs and outputs in physical terms. Advantages of the conference method include: 1. It is a thorough and detailed way to estimate a cost function when there is a physical relationship between inputs and outputs. 2. Some government contracts mandate its use. B. The conference method estimates cost functions on the basis of analysis and opinions about costs and their drivers gathered from various departments of a company (purchasing, process engineering, manufacturing, employee relations, etc.). Advantages of the conference method include: 1. The speed with which cost estimates can be developed. 2. The pooling of knowledge from experts across functional areas. C. The conference method uses a formal mathematical method to fit cost functions to past data observations. Advantages of the conference method include: 1. The speed with which cost estimates can be developed. 2. Easy to use. D. The conference method estimates cost functions by classifying various cost accounts as variable, fixed, or mixed with respect to the identified level of activity. Advantages of the conference method include: 1. Reasonably accurate. 2. Easy to use.
b "2. The pooling of knowledge from experts across functional areas."
What are the four key assumptions examined in specification analysis in the case of simple regression? A. Four key assumptions examined in specification analysis are 1. Independence of residuals. 2. Normal distribution of residuals. 3. Fixed costs are allocated as if they are variable. 4. The relationship between the cost driver and the cost is not stationary. B. Four key assumptions examined in specification analysis are 1. Linearity of relationship between the dependent variable and the independent variable within the relevant range. 2. Constant variance of residuals for all values of the independent variable. 3. Independence of residuals. 4. Normal distribution of residuals. C. Four key assumptions examined in specification analysis are 1. Linearity of relationship between the dependent variable and the independent variable within the relevant range. 2. Constant variance of residuals for all values of the independent variable. 3. Fixed costs are allocated as if they are variable. 4. The relationship between the cost driver and the cost is not stationary. D. None of the above are correct.
b "3. Independence of residuals. 4. Normal distribution of residuals."
"CVP analysis is both simple and simplistic. If you want realistic analysis to underpin your decisions, look beyond CVP analysis." Do you agree? Explain. A. CVP analysis is not simple or simplistic. It's assumption of output as just one of many revenue and cost drivers, and its non-linear revenue and cost relationships creates a complexity which makes it very difficult to understand and useful only in very complex decision-making cases. B. CVP analysis is simple, with its assumption of output as the only revenue and cost driver, and linear revenue and cost relationships. It is not necessarily simplistic, though, since the basic ideas can be expanded upon to provide useful insights in more complex decision-making cases. C. CVP analysis is simple, with its assumption of fixed costs as the only revenue and cost driver, and linear revenue and cost relationships. It is not necessarily simplistic, though, since the basic ideas can be expanded upon to provide useful insights in more complex decision-making cases. D. CVP analysis is simple, with its assumption of output as the only revenue and cost driver, and linear revenue and cost relationships. Because CVP analysis is so simplistic, it provides very little value in more complex decision-making cases.
b "assumption of output"
Distinguish direct costs from indirect costs. A. Direct costs include the acquisition costs of all materials that eventually become part of the cost object and can be traced to the cost object in an economically feasible way while indirect costs include compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way. B. Direct costs are related to the particular cost object and can be traced to that cost object in a cost-effective way while indirect costs are related to the particular cost object but cannot be traced to that cost object in a cost-effective way. C. Direct costs are historical or past costs incurred while indirect costs are predicted or forecasted costs. D. Direct costs are those that change in total in proportion to changes in the related level of total activity or volume while indirect costs are those that remain unchanged in total for a given time period, despite wide changes in the related level of total activity or volume.
b "cost object in a cost-effective way" "indirect costs are related to the particular cost object but cannot be traced to that cost object in a cost-effective way."
Why might an advertising agency use job costing for an advertising campaign by PepsiCo, whereas a bank might use process costing to determine the cost of checking account deposits? A. Job costing can be used to compute the cost of masses of similar services, in contrast process costing enables all the specific aspects of each job to be identified individually. B. Job costing enables all the specific aspects of each job to be identified, whereas process costing can be used to compute the cost of numerous identical or similar services. C. An advertising agency provides the same service to all its clients, while a bank supplies its customers with specialized services. For that reason an advertising agency would use job costing to monitor the costs of an advertising campaign by PepsiCo. D. Whenever a product or service is unique or distinct, process costing is the most efficient way to assign costs. Therefore since each banking transaction is unique, the banks use process costing to determine the cost of checking account deposits.
b Job costing enables all the specific aspects of each job costing can be used to compute the cost of numerous identical or similar services
"Multicollinearity exists when the dependent variable and the independent variable are highly correlated." Do you agree? Explain. A. No. Multicollinearity increases the standard errors of the coefficients of the dependent variables, leaving the independent variables highly correlated. B. Yes. Multicollinearity exists when the dependent variable and the independent variable are highly correlated with each other, resulting in a coefficient of correlation between variables greater than 0.70. C. No. Multicollinearity exists when two or more independent variables are highly correlated with each other. D. Yes. Multicollinearity exists when the dependent variable and the independent variable are highly correlated with each other, resulting in a coefficient of correlation between variables less than 0.70.
c
Describe the overtime-premium and idle-time categories of indirect labor. A. Overtime premium is calculated by multiplying the total overtime hours worked by the workers' straight-time wage rates. Idle time costs are calculated by multiplying the number of unproductive hours by the overtime premium wage rate. B. Idle time is the wage rate paid to workers (for both direct labor and indirect labor) in excess of their straight-time wage rates. Overtime premium is a subclassification of indirect labor that represents wages paid for unproductive time caused by lack of orders, machine breakdowns, poor scheduling, etc. C. Overtime premium is the wage rate paid to workers (for both direct labor and indirect labor) in excess of their straight-time wage rates. Idle time is a subclassification of indirect labor that represents wages paid for unproductive time caused by lack of orders, machine breakdowns, poor scheduling, etc. D. Both A. and B.
c
A company might use budgeted costs rather than actual costs to compute direct-labor rates because A. the budgeted costs will result in a higher gross margin. B. the budgeted cost will result in lower corporate income taxes. C. it may be difficult to trace direct labor costs to jobs as they are completed. D. the budgeted costs are more accurate.
c it may be difficult to trace direct labor costs to jobs as they are completed.
Choose an example of how a manager can decrease variable costs while increasing fixed costs. A. Using hourly wage workers to replace a robotic machine. B. Hiring a subcontractor to do repairs on a per-visit basis rather than on an annual retainer basis. C. Changing a sales force compensation plan from a percent of sales dollars to a fixed salary. D. None of the above.
c sales force compensation plan from a percent of sales dollars to a fixed salary
Select the description of sensitivity analysis and how the advent of electronic spreadsheets has affected its use. A. Sensitivity analysis measures how much a company can charge for its products over and above the cost of acquiring or producing them. The advent of the electronic spreadsheet has greatly decreased the ability to explore the effect of alternative assumptions and is more expensive than previous methods. B. Sensitivity analysis is the difference between the selling price and variable cost per unit. The advent of the electronic spreadsheet has greatly increased the ability to explore the effect of alternative assumptions at minimal cost. C. Sensitivity analysis is the "what-if" technique that managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes. The advent of the electronic spreadsheet has greatly increased the ability to explore the effect of alternative assumptions at minimal cost. D. Sensitivity analysis is the "what-if" technique that managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes. The advent of the electronic spreadsheet has greatly increased the ability to explore the effect of alternative assumptions but comes at a much higher cost to companies.
c what if minimal cost
Distinguish between inventoriable costs and period costs. A. Inventoriable costs include material costs and are capitalized as assets to the company until the items are sold. Period costs include labor and overhead costs and are expensed as incurred. Period costs are reported in the income statement within the cost of goods sold account. B. Inventoriable costs include direct manufacturing materials and direct manufacturing labor costs that are capitalized into inventory and remain on the balance sheet until sold. Period costs include indirect manufacturing (or manufacturing overhead) costs and are expensed as incurred through the cost of goods sold account. C. Inventoriable costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold when the product is sold. Period costs are all costs in the income statement other than cost of goods sold. Period costs are treated as expenses of the accounting period in which they are incurred because they are expected to not benefit future periods. D. Inventoriable costs are all costs of goods purchased that are resold in a subsequent period. Period costs are all costs of goods purchased that are resold within the same period.
c "all costs of a product that are considered as assets in the balance sheet"
What is the relevant range? What role does the relevant-range concept play in explaining how costs behave? A. The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the related fixed costs. Costs are described as direct or indirect with respect to a particular relevant range. B. The relevant range is the band of normal activity level or volume in which there is an abnormal relationship between the level of activity or volume and the variable cost per unit. Costs are described as relevant or irrelevant with respect to a particular relevant range. C. The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question. Costs are described as variable or fixed with respect to a particular relevant range. D. The relevant range is the band of normal activity level or volume in which there is no relationship between the level of activity or volume and the cost in question. Costs are described as relevant or irrelevant with respect to a particular relevant range.
c "specific relationship" "described as variable or fixed"
Select the correct definition for the following costs. Direct material costs = Costs of all materials that can be traced to the cost object. Direct manufacturing-labor costs = Compensation of all manufacturing labor that can be traced to the cost object. Manufacturing overhead costs = All manufacturing costs related to the cost object but cannot be traced to the cost object. Prime costs = All direct manufacturing costs. Conversion costs = All manufacturing costs other than direct material costs.
correct
Identify the seven steps in job costing. Step 1 = Identify the job that is the chosen cost object. Step 2 = Identify the direct costs of the job. Step 3 = Select the cost-allocation bases to use for allocating indirect costs to the job. Step 4 = Identify the indirect costs associated with each cost-allocation base. Step 5 = Compute the rate per unit of each cost-allocation base used to allocate indirect costs to the job. Step 6 = Compute the indirect costs allocated to the job. Step 7 = Compute the total cost of the job by adding all direct and indirect costs assigned to the job.
correct!
How does an increase in the income tax rate affect the breakeven point? A. An increase in the income tax rate would increase the selling price. Customers will buy less units at an increased price, therefore, changing the breakeven point. B. An increase in the income tax rate decreases operating income and would change the breakeven point. C. An increase in the income tax rate decreases net income and would change the breakeven point. D. None of the above. An increase in the income tax rate does not affect the breakeven point.
d
Identify the reason(s) why most organizations use an annual period rather than a weekly or monthly period to compute budgeted indirect-cost rates. A. The denominator reasonlong dashthe longer the time period, the less the effect of variations in output levels on the allocation of fixed costs. B. The numerator reasonlong dashthe longer time period, the less influence of seasonal patterns. C. Neither A nor B. D. Both A and B.
d
What are three different types of inventory that manufacturing companies hold? A. Production, retail, and merchandising B. Direct materials, direct labor, and overhead C. Variable, fixed, and overhead D. Direct materials, work-in-process, and finished goods
d
Which of the following are frequently encountered problems when collecting cost data on variables included in a cost function? A. 1. The time period used to measure the dependent variable is not properly matched with the time period used to measure the cost driver(s). 2. Fixed costs are allocated as if they are variable. B. 1. Data are either not available for all observations or are not uniformly reliable. 2. Extreme values of observations occur. C. 1. A homogeneous relationship between the individual cost items in the dependent variable cost pool and the cost driver(s) does not exist. 2. The relationship between the cost and the cost driver is not stationary. D. All of the above are correct.
d
Why do managers consider direct costs to be more accurate than indirect costs? A. Allocating indirect costs is more subjective and generally more difficult to assign to a cost object than are direct costs. Therefore, direct costs are deemed by managers to be more accurate costs than indirect costs. B. When costs are allocated, managers are less certain whether the cost allocation base accurately measures the resources demanded by a cost object, and therefore, direct costs are considered to be more accurate. C. Cost tracing, which is used when assigning direct costs to a particular cost object, is more accurate than cost allocation, which is used to assign indirect costs to the same cost object. D. All of the above.
d
Why is it more accurate to describe the subject matter of this chapter as CVP analysis rather than as breakeven analysis? A. The breakeven analysis only denotes the study of the breakeven point. B. The breakeven point is an incidental part of the relationship between cost, volume, and profit. C. Cost-volume-profit is a more comprehensive term than breakeven analysis. D. All of the above.
d
How can a company with multiple products compute its breakeven point? A. The breakeven point can not be computed with multiple products. B. The breakeven point can be computed by assuming that each product sold is sold at the same price per unit. C. The breakeven point can be computed by assuming that each product sold has the same contribution margin per unit. D. The breakeven point can be computed by assuming there is a constant sales mix of products at different levels of total revenue.
d by assuming there is a constant sales mix of products
Describe three methods that managers can use to express CVP relationships. A. Target income, contribution margin, and graph method B. Operating leverage, target income, and contribution method C. Revenue, equation, and contribution margin method D. Equation, contribution margin, and graph method
d "EQUATION" GRAPH METHOD"
"All the independent variables in a cost function estimated with regression analysis are cost drivers." Do you agree? Explain. A. Yes. A cost driver is any factor whose change will not cause a change in the total cost of a related cost object. A cause-and-effect relationship does not underlie selection of a cost driver. Some users of regression analysis include numerous independent variables in a regression model in an attempt to maximize goodness of fit, irrespective of the economic plausibility of the independent variables included. All of the independent variables included must be cost drivers. B. Yes. A cost driver is any factor whose change causes a change in the total cost of a related cost object. A cause-and-effect relationship underlies selection of a cost driver. Users of regression analysis include numerous independent variables in a regression model in an attempt to maximize goodness of fit, irrespective of the economic plausibility of the independent variables included. All of the independent variables included must be cost drivers. C. No. A cost driver is any factor whose change will not cause a change in the total cost of a related cost object. A cause-and-effect relationship does not underlie selection of a cost driver. Some users of regression analysis include numerous independent variables in a regression model in an attempt to maximize goodness of fit, irrespective of the economic plausibility of the independent variables included. Some of the independent variables included may not be cost drivers. D. No. A cost driver is any factor whose change causes a change in the total cost of a related cost object. A cause-and-effect relationship underlies selection of a cost driver. Some users of regression analysis include numerous independent variables in a regression model in an attempt to maximize goodness of fit, irrespective of the economic plausibility of the independent variables included. Some of the independent variables included may not be cost drivers.
d "No. A cost driver is any factor whose change "causes a change" THE OTHER SIMILAR ANSWER SAYS "WILL NOT CAUSE A CHANGE"
Electronic Data Interchange (EDI) is helpful to managers because A. it increases manufacturing productivity. B. it increases product quality. C. it lowers manufacturing costs. D. it ensures that a purchase order is transmitted quickly and accurately to suppliers with minimum paperwork and costs.
d it ensures that a purchase order is transmitted quickly and accurately to suppliers with minimum paperwork and costs.
Define learning curve. Select two models that can be used when incorporating learning into the estimation of cost functions. A learning curve is a function that measures how labor-hours per unit ______ as units of production ______ because workers __________________ at their jobs. Two models that can be used when incorporating learning into the estimation of cost functions are: 1? 2?
decline, increase, because workers are learning and becoming better 1. Cumulative average-time learning model 2. Incremental unit-time learning model
The five-step decision-making process includes: A. (1) Identifying the problem and uncertainties, (2) Obtaining information, (3) Making predictions about the future, (4) Making decisions by choosing among alternatives, and (5) Implementing the decision, evaluating performance and learning. B. (1) Research and development, (2) Making decisions by choosing among alternatives, (3) Production, (4) Distribution, and (5) Customer service. C. (1) Research and development, (2) Production, (3) Marketing, (4) Distribution, and (5) Customer service. D. (1) Identifying the problem and uncertainties, (2) Research and development, (3) Making decisions by choosing among alternatives, and (4) Implementing the decision, evaluating performance and learning, and (5) Customer service.
A. (1) Identifying the problem and uncertainties, (2) Obtaining information, (3) Making predictions about the future, (4) Making decisions by choosing among alternatives, and (5) Implementing the decision, evaluating performance and learning.
