Cost Accounting Final

Normal costing assigns indirect costs based on actual indirect-cost rate. (T/F)

False

Product differentiation is an organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control. (T/F)

False

Revenues that remain the same for two alternatives being examines are relevant revenues. (T/F)

False

The balance sheet, income statement of cash flows are used for financial accounting, but not for management accounting. (T/F)

False

The best-designed strategies are valuable whether or not they are effectively implemented. (T/F)

False

The larger the vertical difference between actual costs and predicted costs the better the goodness of fit. (T/F)

False

The proportion approach to allocating over-applied or under-applied overhead adjusts individual job-cost records. (T/F)

False

Using multiple unit-level cost driver generally constitutes an effective activity-based system. (T/F)

False

When 100,000 units are produced the fixed cost is $20 per unit. Therefore, when 500,000 units are produced fixed costs will remain at $20 per unit. (T/F)

False (Fixed costs PER UNIT become $4 each: [(20*100,000)/500,000])

Normal costing assigns indirect costs based on an actual indirect-cost rate. (T/F)

False (budgeted indirect cost-rate)

ABC systems attempt to trace more costs as indirect costs. (T/F)

False (direct costs)

Variance analysis of fixed overhead costs is also useful when a company uses activity-based costing. (T/F)

True

The law firm of Smith & Jones has a staff of 30 lawyers and administrative staff. Budgeted total costs of the firm total $2,100,000 of which $1,200,000 is direct-labor costs. Assuming that he remaining costs are indirect and direct-labor cost is the allocation base, calculate the budgeted indirect cost rate. (round)

75% of direct-labor cost

Production Budget Formula

Budgeted Sales + Target Ending Inv. - Beginning Inv.

5 steps of decision making process in correct order: A- Obtain information B- Make decisions by choosing among alternatives C- Identify the problem and uncertainties D- Implement the decision E- Make predictions about the future

C- Identify the problem and uncertainties A- Obtain information E- Make predictions about the future B- Make decisions by choosing among alternatives D- Implement the decision

A favorable variance can be automatically interpreted as "good news". (T/F)

False

A favorable variance should be ignored by management. (T/F)

False

A linear cost function can only represent fixed cost behavior. (T/F)

False

Companies typically wait for accurate information regrading actual manufacturing overhead costs before pricing a job. (T/F)

False

Fixed costs depend on the resources used, not the resources acquired. (T/F)

False

For one-time-only special orders, fixed costs may be relevant but NOT variable costs. (T/F)

False

The revenues budget should be based on the production budget. (T/F)

False

Statement NOT true about the direct/indirect cost classification.

Indirect costs are always traced

When actual input data from past periods is used to develop budget:

Information is available at a low cost

A sunk cost can never be relevant. (T/F)

True

When estimating a cost function, cost behavior can be approximated by a linear cost function within relevant range. (T/F)

True

Most likely to use a process costing system?

a manufacturer of breakfast cereal

When analyzing the change in operating income, the strategy component of price-recovery:

compare the change in output price with the change in input prices

Regression analysis:

measures the change in dependent variable associated with one or more independent variables

A key reason for using an ABC system rather than a department-costing system is because ABC assigns costs:

to reflect required differences by different processes as well as customers

The cost components of a heater include $35 for the compressor, $12 for the sheet molded frame, and $80 per unit for the assembly. The factory machines and tools cost is $55,000. The company expects to produce 1,500 heaters in the coming year. What is the cost function?

y=55,000 + 127x

Statement that refers to management accounting information.

There are no regulations governing the reports.

The wages of a plant supervisor would be classified as a product cost. (T/F)

True

Schultz Company expects to manufacture and sell 30,000 baskets in 2004 for $6 each. There are 3,000 baskets in the beginning finished goods inventory with target ending inventory of 4,000 baskets. The company keeps no work-in-process inventory. What amount of sales revenue will be reported on the 2004 budgeted income statement?

$180,000 (30,000*6)

For Alice Company, labor-hours are 25,000 and wages $94,000 at the high point of the relevant range, and labor-hours are 15,000 and wages $70,000 at the low-point of the relevant range. What is the slope coefficient per labor-hour?

$2.40 (94,000 - 70,000)/ (25,000 - 15,000)

Fixed costs equal $12,000, unit contribution margin equal $20, and the number of units sold equal 1,600. Operating income is:

$20,000

TRUE statements

-Normal costing uses the budgeted indirect-cost rates times - Actual costing uses actual indirect-cost rate times

... is the process of disturbing indirect costs to products:

Cost allocation

If planned net income is $21,000 and the tax rate is 30%, then planned operating income would be $27,300. (T/F)

False

In a graphical display of cost function, the steepness of the slope represents the total amount of fixed costs. (T/F)

False

In for-profit companies, the primary goal of the balanced scorecard is to sustain short-run financial performance. (T/F)

False

Managers always require the information in an accounting system to be presented in the same format. (T/F)

False

The last step in the decision-making process is to make decisions by choosing among alternatives. (T/F)

False (feedback and learning)

If variable costs per unit increase, then the breakeven point will decrease. (T/F)

False (increase)

Management accounting includes:

Financial accounting task, implementing strategies, developing budgets, and preparing special studies and forecasts.

FALSE equation

Gross Margin Ratio=Gross Margin/COGS

The cost function y=80+4x:

Has a slope coefficient of 4

ABC systems provide better product costs when they:

Identity and cost more indirect cost differences among products.

Product costs used for external reporting generally include:

Manufacturing costs ONLY

Within the relevant range, if there is a change in the level of the cost driver, then:

Total fixed costs will remain the same and total variable costs will change.

A cost concept used for external reporting purposes may not be appropriate for internal, routine reporting to managers. (T/F)

True

A top selling product might actually result in losses for the company. (T/F)

True

A unit cost is computed by dividing total cost by the number of units. (T/F)

True

ABC reveals opportunities for improving the way work is done. (T/F)

True

ABC reveals oppurtunities for improving the way work is done. (T/F)

True

An effective way to cut costs is to eliminate activities that do NOT improve the product attributes that customers value. (T/F)

True

Companies with greater proportion of fixed costs have a greater risk of loss than companies with greater proportion of variable costs. (T/F)

True

Economic plausibility is an important criterion for choosing a cost driver. (T/F)

True

Fixed costs have no cost driver in the short run, but may have a cost driver in the long run. (T/F)

True

Manufacturing overhead costs are allocated to individual job-cost records with the use of indirect cost-rates. (T/F)

True

One of the steps in planning is making predictions about the future. (T/F)

True

Products, services, departments and customers may be cost objects. (T/F)

True

Some fixed costs may be classified as direct manufacturing costs. (T/F)

True

The flexible-budget variance for direct-cost inputs is subdivided into two detailed variances, the efficiency and the price variance. (T/F)

True

The key to company's success is creating a value for customers while differentiating itself from its competitors. (T/F)

True

The materiality of the cost is a factor in classifying the cost as direct or indirect cost. (T/F)

True

The smaller the vertical difference between actual costs and predicted costs, the better the goodness of fit. (T/F)

True

The person most likely to use ONLY financial accounting information is a:

current shareholder

Breakeven point is:

fixed costs divided by contribution margin per unit

The cost function y=150+10x:

has an intercept of 150

Financial Accounting

must comply with GAAP

Quantitative analysis methods estimate cost functions:

using significant amounts of historical data

Inventoriable costs are expensed on the income statement:

when the products are sold