Management Accounting Final Exam

B. All of these

"Costs to serve": A. Occur both upstream (before) and downstream (after) in reference to the point of sale B. All of these C. Should be allocated to the customers who create the cost D. Are hidden within the S, G, and A component of the Income Statement E. None of these

A. Creates more opportunity to manage earnings by "overproducing"

(Assume absorption costing) The movement away from labor -intensive to capital-intensive production: A. Creates more opportunity to manage earnings by "overproducing" B. Creates less opportunity to manage earnings by "overproducing" C. Has no impact on the opportunity to manage earnings

24,000; 56,000

1. Company N increased its sales by 80,000 units between 2017 (400,000 units) and 2018 (480,000 units). During this same year, the market size increased by 6% so therefore __________ units of this growth was due to a larger overall market for the product. Likewise, ___________ units of growth must have come from an increase in the market share.

Whale curve

A ______________ shows where customers start to become unprofitable

dual transfer-pricing

A _____________________ system charges the buying division for the cost of the transferred product (however the cost might be determined) and credits the selling division with the cost plus some profit allowance.

B. Increase the handle unit cost by $.15. Since the fixed cost will be incurred whether the company makes or buys the part, the relevant unit cost of making the part is the $1.10 variable cost ($1.30 - $.20 fixed overhead). The existence of idle capacity indicates that the firm has no opportunity cost to be considered in the calculation. Thus, accepting the offer would increase costs by $.15 ($1.25 - $1.10) per unit.

A company currently manufactures all component parts used in the manufacture of various hand tools. A handle is used in three different tools. The unit cost budget for 20,000 handles is Direct material $.60 Direct labor $.40 Variable overhead $.10 Fixed overhead $.20 Total unit cost $1.30 A parts manufacturer has offered to supply 20,000 handles to the company for $1.25 each, delivered. If the company currently has idle capacity that cannot be used, accepting the offer will A. Increase the handle unit cost by $.05. B. Increase the handle unit cost by $.15. C. Decrease the handle unit cost by $.15. D. Decrease the handle unit cost by $.05.

B. Increase $5,000. If the company were to purchase the part instead of making it, it would save both direct materials ($40,000) and direct labor ($30,000) costs. However, it would still incur the fixed plant facility cost ($20,000) in addition to the purchase price of the parts themselves (10,000 units × $8 purchase price = $80,000). This total can be reduced by the $5,000 income the company would earn by renting its idle capacity. Therefore, the total cost to purchase the component is $95,000 ($20,000 + $80,000 - $5,000). The total cost of manufacturing in-house is $90,000 ($40,000 direct materials + $30,000 direct labor + $20,000 fixed plant facility cost). If the company purchases the part from outside, its monthly costs will therefore increase by $5,000 ($95,000 to purchase - $90,000 to produce).

A company is considering outsourcing one of the component parts for its product. The company currently makes 10,000 parts per month. Current costs are as follows: Per unit Total Direct materials $4 $40,000 Direct labor $3 $30,000 Fixed plant facility cost $2 $20,000 The company decides to purchase the part for $8 per unit from another supplier and rents its idle capacity for $5,000/month. How will the company's monthly costs change? A. Increase $10,000. B. Increase $5,000. C. Decrease $15,000. D. Decrease $10,000.

B. $241,000 Given that overhead is 40% fixed, $66,000 ($110,000 × 60%) is variable, and $44,000 is fixed. Of the latter amount, $25,000 is attributable to the supervisor's salary. The $19,000 remainder is allocated from total company overhead and is unavoidable. Assuming the company will continue to pay the supervisor's salary if an outside firm services the cafeteria, the total fixed overhead is not an avoidable (incremental) cost. Thus, the total avoidable cost of the cafeteria's operation is $241,000 ($100,000 food + $75,000 labor + $66,000 VOH). This amount is the savings from hiring an outside firm. Accordingly, it is also the maximum that the corporation should be willing to pay the outside firm.

A corporation has its own cafeteria with the following annual costs: Food $100,000 Labor $75,000 Overhead $110,000 Total $285,000 The overhead is 40% fixed. Of the fixed overhead, $25,000 is the salary of the cafeteria supervisor. The remainder of the fixed overhead has been allocated from total company overhead. Assuming the cafeteria supervisor will remain and the corporation will continue to pay his/her salary, the maximum cost the corporation will be willing to pay an outside firm to service the cafeteria is A. $219,000 B. $241,000 C. $175,000 D. $285,000

C. $2,520,000

A particular airline's GROWTH component showed a $ 4,200,000 positive impact on income. If we know that the airline experienced total growth of 15% & that the market size of the airline industry increased 6%, what is the $ positive impact of the airline's growth in market share? A. $630,000 B. $3,780,000 C. $2,520,000 D. $378,000 E. Some other amount

D. Fewer than units sold in Year 2. The sole difference between variable and absorption costing is that the latter applies fixed manufacturing costs as an inventoriable cost. When sales exceed production, absorption costing recognizes as a cost of goods sold not only the fixed factory overhead of the current period (the amount included for variable-costing purposes) but also the portion of such overhead included in the cost of the units of beginning inventory deemed to have been sold. Thus, variable-costing results in a lower cost of goods sold and a higher net income than absorption-costing when sales exceed production.

A single-product company prepares income statements using both absorption and variable costing. Manufacturing overhead cost applied per unit produced in Year 2 was the same as in Year 1. The Year 2 variable-costing statement reported a profit, whereas the Year 2 absorption-costing statement reported a loss. A possible explanation for the difference in reported income is that the units produced in Year 2 were A. Fewer than the activity level used for allocating overhead to the product. B. Greater than the activity level used for allocating overhead to the product. C. Greater than units sold in Year 2. D. Fewer than units sold in Year 2.

D. The table manufacturer should accept the offer if it is less than $47.00 and the table manufacturer has excess manufacturing capacity. The total unit cost includes $20 of fixed costs ($17 + $3) that is not avoidable if the units are purchased. Moreover, the company has excess capacity. The opportunity cost of making the table tops is zero because no production will be displaced. Consequently, the relevant unit cost of making the table tops is the $47 unit variable cost, and the supplier's price must be less to justify the buy decision.

A table manufacturing company has the following cost structure for producing table tops. Unit Costs Direct materials $23.00 Direct labor $12.00 Variable manufacturing overhead $10.00 Fixed manufacturing overhead $17.00 Variable administrative costs $2.00 Fixed administrative costs $3.00 Total unit costs $67.00 Recently, the table manufacturer received an offer from a corporation to supply the table tops to the table manufacturer. The table manufacturer is considering buying the table tops instead of manufacturing them internally. Which one of the following statements is correct? A. The table manufacturer should reject the offer if it is $50.00 or more. B. The table manufacturer should reject the offer if it is less than $47.00 and the table manufacturer has excess manufacturing capacity. C. The table manufacturer should accept the offer if it is $50.00 or more and the table manufacturer has excess manufacturing capacity. D. The table manufacturer should accept the offer if it is less than $47.00 and the table manufacturer has excess manufacturing capacity.

Decentralization

An organizational structure that gives managers at lower levels the freedom to make decisions

C. Growth and Productivity

An overall positive effect on income emerged in which 2 components of SW in 2005? A. Capacity and Price Recovery B. Price Recovery and Productivity C. Growth and Productivity D. Capacity and Growth E. Productivity and Capacity

A. $900,000 The only costs capitalized are the variable costs of manufacturing. Prime costs (direct materials and direct labor) are variable. Prime costs (direct materials & direct labor) $800,000 Variable manufacturing overhead $100,000 Total inventoriable costs $900,000

At the end of its fiscal year, C.G. Manufacturing recorded the data below: Prime cost $800,000 Variable manufacturing overhead $100,000 Fixed manufacturing overhead $160,000 Variable selling and other expenses $80,000 Fixed selling and other expenses $40,000 If C.G. uses variable costing, the inventoriable costs for the fiscal year are A. $900,000 B. $1,060,000 C. $980,000 D. $800,000

D. $1,060,000 Absorption costing is required by GAAP. It charges all costs of production to inventories. The prime costs ($800,000), variable manufacturing overhead ($100,000), and the fixed manufacturing overhead ($160,000) are included. They total $1,060,000.

At the end of its fiscal year, C.G. Manufacturing recorded the data below: Prime cost $800,000 Variable manufacturing overhead $100,000 Fixed manufacturing overhead $160,000 Variable selling and other expenses $80,000 Fixed selling and other expenses $40,000 Using absorption (full) costing, C.G.'s inventoriable costs are A. $1,080,000 B. $900,000 C. $800,000 D. $1,060,000

C. $36,000

At the start of its fiscal year, a company anticipated producing 300,000 units throughout the year. The annual budgeted manufacturing overhead was $150,000 for variable costs and $600,000 for fixed costs. In April, when there was a beginning inventory for finished goods of 5,000 units, the company showed an income of $40,000 using absorption costing. That same month, ending inventory for finished goods was 7,000 units. What amount would the company recognize as income for April using variable costing? A. $35,000 B. $45,000 C.$36,000 D. $44,000

D. $37.50

Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows: Raw lumber division = $125 per 100 board-ft Finished lumber division= $145 per 100 board-feet of finished lumber Assume that there is no board-feet loss in processing raw lumber into finished lumber. Raw lumber can be sold at $175 per 100 board-feet. Finished lumber can be sold at $345 per 100 board-feet. Assume that internal transfers are made at 130% of Variable Cost. Calculate the operating income per 100 board-feet for the Finished lumber Division. A. $182.50 B. Some other amount C. $75.00 D. $37.50

B. All of these statements are correct

Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows: Raw lumber division = $125 per 100 board-ft Finished lumber division= $145 per 100 board-feet of finished lumber. Assume that there is no board-feet loss in processing raw lumber into finished lumber. Raw lumber can be sold at $175 per 100 board-feet. Finished lumber can be sold at $345 per 100 board-feet. Assume that internal transfers are made at 130%. Which of the following statements is CORRECT? A. None of these statements are correct B. All of these statements are correct C. The raw lumber division will not be in favor of this transfer price if unlimited demand exists in the external market for raw lumber. D. The finished lumber division will benefit from this transfer price. E. The incremental profit for the company by processing raw lumber further amounts to $25 per 100 board-feet.

D. The Finished Lumber Division will reject this special order and this decision will negatively impact overall company profits

Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows: Raw lumber division = $125 per 100 board-ft Finished lumber division= $145 per 100 board-feet of finished lumber. Assume that there is no board-feet loss in processing raw lumber into finished lumber. Raw lumber can be sold at $175 per 100 board-feet. Finished lumber can be sold at $345 per 100 board-feet. The transfer price is set at 130% of variable cost. Assume Finished Lumber Division has a special order whereby the new customer offers to pay $300 per 100 board-feet. Also assume that both divisions have the capacity needed for this special order. Which of the following will likely result in regard to this special offer? A. The Finished Lumber Division will accept this special order and this decision will negatively impact overall company profits B. The Finished Lumber Division will reject this special order and this decision will positively impact overall company profits C. The Finished Lumber Division will accept this special order and this decision will positively impact overall company profits D. The Finished Lumber Division will reject this special order and this decision will negatively impact overall company profits

Productivity

Companies that successfully pursue a cost leadership strategy can be expected to show a favorable ______________ component and often a favorable growth component.

Product differentiation

Company X incurs higher input costs in year 2 but is able to increase its price enough to offset the increased costs. Which strategy is this company likely pursuing?

D. Avoidable fixed costs. Relevant costs are anticipated costs that will vary among the choices available. If two courses of action share some costs, those costs are not relevant because they will be incurred regardless of the decision made. Relevant costs include fixed costs that could be avoided if the items were purchased from an outsider.

Costs relevant to an insourcing vs. outsourcing decision include variable manufacturing costs as well as A. Factory depreciation. B. Factory management costs. C. Property taxes. D. Avoidable fixed costs.

Increased (from 69.49% to 70.69%)

Did SWA's % of available capacity used increase or decrease in 2005?

Decreased (from .042 to .041 per ASM)

Did SWA's cost of providing capacity (per ASM) increase or decrease in 2005?

C. $80

Division S (seller) incurs variable cost of $80 per unit. There is unlimited demand for the output of Division S in the external market where the market price is $125 per unit. IF there is excess capacity in Division S, what is the minimum transfer price Division S will accept to avoid incurring a loss? A. $125 B. Some other amount C. $80

A. $25

Division S (seller) incurs variable cost of $80 per unit. There is unlimited demand for the output of Division S in the external market where the market price is $125 per unit. IF there is no excess capacity in Division S, what is the opportunity cost (per unit) for Division S if the transfer price to Division B is set at $100? A. $25 B. There is zero opportunity cost. C. Some other amount D. $45 E. $20

No

Does "having more measures" mean a "better" scorecard?"

B. Straight-line depreciation on factory equipment.

Dowell Co. manufactures a wooden item. Which of the following is included with the inventoriable cost under absorption costing and excluded from the inventoriable cost under variable costing? A. Cost of electricity used to operate production machinery. B. Straight-line depreciation on factory equipment. C. Wages of assembly-line personnel. D. Cost of scrap pieces of lumber.

Performance measures

Each strategic objective in the balanced scorecard is accompanied by what?

5

Fewer than __% of Delta's customers account for 25% of their ticket revenue

United States

Germany or United States: Which costing system allows for more flexibility?

Germany

Germany or United States: Which costing system has more cost centers with fewer managers for each one?

Germany

Germany or United States: Which costing system is more structured, detailed & precise?

C. Available Passenger Miles

How is capacity measured in the airline industry? A. Passenger Load Factor B. Revenue Passenger Miles C. Available Passenger Miles D. Stage Length

4 years

How long did it take Mercedes to move from a new product/concept to full production?

3

How many levels of contribution margins exist under GPK?

A. True

If production > sales, absorption costing shows a higher net income than variable costing. A. True B. False

D. $20,000 When a manufacturer has excess production capacity, there is no opportunity cost involved when accepting a special order. The total increase in profit from the special order is calculated as follows: Sales price $130 Variable costs $80 Contribution margin per unit ($130 - $80) = $50 Profit for 400 units (400 × $50) = $20,000

In a lean accounting environment, a company accepts a special order to make 200 units of a product each month for the next 2 months for $130 per unit. The company normally sells the unit for $170 per unit with variable costs per unit at $80. The company plans to use excess capacity. By what amount would this special order increase profit? A. $52,000 B. $16,000 C. $36,000 D. $20,000

C. Avoidable fixed costs. The relevant costs in a make-versus-buy decision are those that differ between the two decision choices. These costs include any variable costs plus any avoidable fixed costs. Avoidable fixed costs will not be incurred if the "buy" decision is selected.

In a make-versus-buy decision, the relevant costs include variable manufacturing costs as well as A. Factory management costs. B. Depreciation costs. C. Avoidable fixed costs. D. General office costs.

D. Used in the computation of the contribution margin.

In an income statement prepared as an internal report using the variable costing method, variable SG&A expenses are A. Not used. B. Treated the same as fixed selling and administrative expenses. C. Used in the computation of operating income but not in the computation of the contribution margin. D. Used in the computation of the contribution margin.

A. Be used in the computation of operating income but not in the computation of the contribution margin. Under the variable-costing method, the contribution margin equals sales minus variable expenses. Fixed selling and administrative costs and fixed factory overhead are deducted from the contribution margin to arrive at operating income. Thus, fixed costs are included only in the computation of operating income.

In an income statement prepared using the variable-costing method, fixed factory overhead would A. Be used in the computation of operating income but not in the computation of the contribution margin. B. Not be used. C. Be treated the same as variable factory overhead. D. Be used in the computation of the contribution margin.

D. None of these statements are correct

In regard to how costs are assigned to individual customers, which of these statements is CORRECT? A. The assignment of costs to serve should be assigned to individual customers using a volume-based approach B. A traditional ABC costing system is the best system choice when assigning costs to serve to individual customer C. All of these statements are correct D. None of these statements are correct E. All non-production costs should be assigned to specific customers

D. Shorter flights taken by passengers

In the airline industry and within the Productivity Component, which of the following negatively impacts income? A. Fuller planes (fewer empty seats) B. None of these C. Longer stage length D. Shorter flights taken by passengers E. All of these

D. Variable indirect costs are treated as product costs. Variable costing considers only variable manufacturing costs to be product costs. Variable indirect costs included in variable overhead are therefore treated as inventoriable. Fixed costs are considered period costs and are expensed as incurred.

In the application of variable costing as a cost-allocation process in manufacturing, A. Nonvariable indirect costs are treated as product costs. B. Nonvariable direct costs are treated as product costs. C. Variable direct costs are treated as period costs. D. Variable indirect costs are treated as product costs.

E. All of these were proposed resolutions

In the article "Pitfalls of Cost-plus Transfer Pricing." which of the following suggestions were offered as potential resolutions to the problems associated with transfer pricing? A. Use a dual pricing system where the selling division shows revenue based on incremental cost + markup but the buying division is only charged the incremental cost (no markup) B. Avoid setting up divisions that sell to both external and internal customers C. Set all transfer prices at incremental cost and allow managers in the selling division to profit only from external sales of output D. Set up divisions that only sell to internal customers as cost centers whereby they are evaluated only on efficiency of operations E. All of these were proposed resolutions

Leading

Is increase in customer satisfaction a leading or lagging indicator?

Lagging

Is profit margin a leading or lagging indicator?

D. $995,000 Under absorption costing, the inventoried costs consist of all direct materials, direct labor, and manufacturing overhead. Manufacturing overhead includes depreciation, factory rent, and power for the machines. Thus, the total cost to be inventoried is $995,000 ($800,000 + $100,000 + $60,000 + $35,000).

Keller Company, a manufacturer of rivets, uses absorption costing. Keller's manufacturing costs were as follows: Direct materials and direct labor $800,000 Depreciation of machines $100,000 Rent for factory building $60,000 Electricity to run machines $35,000 How much of these costs should be inventoried? A. $800,000 B. $935,000 C. $835,000 D. $995,000

A. $6.75 The key to this question is, what costs will the company avoid if it buys from the outside supplier? It will no longer incur the $2.00 of direct materials, nor the $2.40 of direct labor, nor the $1.60 of variable overhead, nor $0.75 ($2.50 × 30%) of the variable marketing costs (regardless of whether the company makes or buys, it will still incur 70% of the variable marketing costs). The firm will therefore avoid costs of $6.75 ($2.00 + $2.40 + $1.60 + $0.75). Hence, it will at least break even by paying no more than $6.75.

Listed below are a company's monthly unit costs to manufacture and market a particular product. Manufacturing costs: Direct materials $2.00 Direct labor $2.40 Variable indirect $1.60 Fixed indirect $1.00 Marketing costs: Variable $2.50 Fixed $1.50 The company must decide to continue making the product or buy it from an outside supplier. The supplier has offered to make the product at the same level of quality that the company can make it. Fixed marketing costs would be unaffected, but variable marketing costs would be reduced by 30% if the company were to accept the proposal. What is the maximum amount per unit that the company can pay the supplier without decreasing operating income? A. $6.75 B. $8.50 C. $7.75 D. $5.25

C. This will cost Meridian Company $180,000

Meridian Company's Production Division was operating below capacity. Its Assembly Division had been buying a part for its final product XX-1 in the external market for $40 per unit and is now asking the Production Division to supply 10,000 units of this part for $30 per unit. The variable cost for the Production Department would be $22.00. IF the Production refuses to make the 10,000 parts for a transfer price of $30 because this is less than the $40 the Production Division is currently paying, what will be the financial impact for Meridian Company of this standoff between divisional managers? A. There will be no impact on Meridian Company profits B. This will cost Meridian Company $100,000 C. This will cost Meridian Company $180,000 D. This will cost Meridian Company $400,000

A. $31

Meridian Company's Production Division was operating below capacity. Its Assembly Division had been buying a part for its final product XX-1 in the external market for $40 per unit and is now asking the Production Division to supply 10,000 units of this part for $30 per unit. The variable cost for the Production Department would be $22.00. What negotiated (hybrid) transfer price would allow each of the 2 parties to benefit equally? A. $31 B. Some other amount C. $40 D. $25 E. $22

D. Economic value added

On a balanced scorecard, which of the following is not a customer satisfaction measure? A. Market share B. Customer retention C. Response Time D. Economic value added

A. No, because the restaurant's profits will decrease by $3,000. If the restaurant does not accept the supplier's offer, it would cost $10 ($3 ingredient costs + $2 labor to prepare the ingredients + $1 labor to bake + $4 occupancy costs) to make each pizza. If the restaurant accepts the supplier's offer, it would cost the restaurant $13 ($8 cost of pre-made pizza + $1 labor to bake + $4 occupancy cost) to complete each pizza. If the restaurant sells 15,000 pizzas and accepts the offer, there will be an additional expense of $45,000 (15,000 × $3). Additionally, if the offer is accepted, profits will increase by $42,000 due to the newly converted dining tables. Therefore, the overall restaurant profit would decrease by $3,000 ($42,000 - $45,000), and the offer should be declined.

One of the items served at a restaurant is pizza that is prepared and baked in the restaurant's kitchen. Each pizza requires $3 of ingredients, $2 of labor to prepare the ingredients, $1 of labor to bake the pizza, and $4 of allocated occupancy costs. The restaurant's supplier has offered to sell the restaurant pre-made pizzas, ready for baking, for $8 each. If the restaurant accepts the supplier's offer, the existing pizza preparation space will be converted into two additional dining tables that will increase profits by $42,000 per year by selling drinks, side dishes, and desserts. The restaurant expects to sell 15,000 pizzas annually with or without the additional dining tables. Should the restaurant accept the supplier's offer? A. No, because the restaurant's profits will decrease by $3,000. B. Yes, because the restaurant's profits will increase by $12,000. C. Yes, because the restaurant's profits will increase by $57,000. D. No, because the restaurant's profits will decrease by $27,000.

A. $352,000 In absorption costing, the unit costs include both fixed and variable manufacturing costs. Fixed manufacturing costs are given as $315,000. For the 70,000 units produced, unit cost was $13.50 [($630,000 + $315,000) ÷ 70,000]. Sales $1,400,000 COGS (60,000 × $13.50) (810,000) Gross margin $590,000 Operating expenses: Variable (98,000) Fixed (140,000) Operating income $352,000

Peterson Company's records for the year ended December 31 show that no finished goods inventory existed at January 1 and no work was in process at the beginning or end of the year. Net sales $1,400,000 Manufacturing costs: Variable $630,000 Fixed $315,000 Operating expenses: Variable $98,000 Fixed $140,000 Units manufactured 70,000 Units sold 60,000 Under the absorption costing method, Peterson's operating income for the year is A. $352,000 B. $374,500 C. $217,000 D. $307,000

C. $14 This answer is correct.The entity should apply relevant costing and contribution margin (revenue - variable cost) analysis. It presumably has two uses for the production capacity needed to make 1,000 components: (1) the special order or (2) an alternative with a unit contribution margin (UCM) of $5 ($5,000 CM ÷ 1,000 units). The fixed costs are not relevant to the choice between the two uses because they will be incurred in either case. Thus, the relevant cost is the unit variable cost ($3 DM + $3 DL + $3 VOH = $9). The unit price at which the entity will be indifferent between the two uses is therefore $14 ($9 unit variable cost + $5 UCM for the alternative to the special order).

Rodder, Inc., manufactures a component in a router assembly. The selling price and unit cost data for the component are as follows: Selling price $15 Direct materials cost $3 Direct labor cost $3 Variable overhead cost $3 Fixed manufacturing overhead cost $2 Fixed selling and administration cost $1 The company received a special one-time order for 1,000 components. Rodder has an alternative use for production capacity for the 1,000 components that would produce a contribution margin of $5,000. What amount is the lowest unit price Rodder should accept for the component? A. $9 B. $12 C. $14 D. $24

D. $91 Given sufficient available capacity, no opportunity cost exists. Relevant costs are limited to variable costs and avoidable fixed costs. Thus, on a per-unit basis, each chair has a relevant cost of $91 [(2 lbs. of material × $20) + (1 direct labor hour × $40) + $10 variable manufacturing overhead + ($5 fixed costs × 20% avoidable)].

S Corp. produces premium office chairs. Due to a recent change in market share, S must decide whether to make or buy an order of 1,000 chairs. The materials cost of producing a chair is $20 per pound, the cost of direct labor is $40 per direct labor hour, and manufacturing overhead (100% variable) is allocated at a rate of $10 per chair. Fixed costs for the year are $5 per chair, of which 20% are avoidable. Each chair requires 2 pounds of materials and 1 hour of direct labor to complete. Assuming that S has excess capacity, the total cost per chair relevant to the make-or-buy decision is A. $95 B. $71 C. $90 D. $91

B. $14,400 Under variable (direct) costing, only variable production costs are capitalized in inventory. Thus, the ending finished goods inventory can be calculated as follows: Direct materials $80,000 Direct labor $40,000 Variable factory overhead $24,000 Total manufacturing costs $144,000 Units produced ÷ 20,000 Cost per unit $7.20 Given no work-in-process at either the beginning or end of the year, ending finished goods inventory consists entirely of units produced during the year. Ending finished goods inventory= (Units produced - Units sold) × Cost per unit = (20,000 - 18,000) × $7.20 = $14,400

Selected information concerning the operations of a company for the year ended December 31 is as follows: Units produced 20,000 Units sold 18,000 Direct materials used $80,000 Direct labor incurred $40,000 Fixed factory overhead $50,000 Variable factory overhead $24,000 Fixed SG&A expenses $60,000 Variable SG&A expenses $9,000 Work-in-process inventories at the beginning and end of the year were zero. What was the company's finished goods inventory cost at December 31 under the variable (direct) costing method? A. $17,000 B. $14,400 C. $19,400 D. $23,900

Standard

Should transfer prices be based on standard or actual costs?

market size; market share

The Growth component can be broken down into _______________ and ________________.

# of passengers & # of miles flown

The Revenue Passenger Miles (RPM's) statistic is based on which 2 factors?

D. Passenger Load Factor

The airline measure that is based on both the # of passengers on a flight and the # of available seats is the: A. Stage Length B. Revenue Passenger Miles C. None of these D. Passenger Load Factor

B. Incremental Cost + Opportunity Cost for the selling division

The general minimum transfer pricing rule is: A. Full cost + Opportunity Cost for the selling division B. Incremental Cost + Opportunity Cost for the selling division C. Full Cost + Markup for the selling division D. None of these

A. Sales volume exceeding production volume.

The management of a company computes net income using both absorption and variable costing. This year, the net income under the variable-costing approach was greater than the net income under the absorption-costing approach. This difference is most likely the result of A. Sales volume exceeding production volume. B. An increase in the finished goods inventory. C. Inflationary effects on overhead costs. D. A decrease in the variable marketing expenses.

C. Cost-Based

The most frequently used method for setting transfer prices is: A. Market-based B. Negotiated (hybrid) C. Cost-Based D. No difference in usage between the 3 methods

# of passengers # of available seats

The passenger-load factor is based on what two elements?

True

True or False: GPK is also called "flexible standard costing."

True

True or False: GPK weighs management accounting and financial accounting as equally important.

False

True or False: Opportunity cost exists when there is excess capacity.

False

True or false: Target costs only include productions costs.

False

True or false: Target costs stay the same throughout the life cycle of a product.

B. Learning and Growth

Under the balanced scorecard concept, employee satisfaction and retention are measures used under which of the following perspectives? A. Customer B. Learning and Growth C. Financial D. Internal Business

B. Period costs. The distinction between absorption costing and direct costing is in the treatment of fixed manufacturing costs. Absorption costing treats them as product costs by allocating them to inventory and cost of goods sold. Direct costing treats all fixed costs as period costs by expensing them as incurred.

Under variable (direct) costing, fixed manufacturing overhead costs are classified as A. Selling costs. B. Period costs. C. Administrative costs. D. Inventoriable costs.

A. Absorption costing

Under which costing system is net income impacted by the level of sales AND changes in inventory? A. Absorption costing B. Variable costing C. Both

A. Multiple financial and non-financial measures

Using the balanced scorecard approach, an organization evaluates managerial performance based on: A. Multiple financial and non-financial measures B. Multiple non-financial measures only. C. A single ultimate measure of operating results, such as return on assets D. Multiple financial measures only

Locked-in costs

What are costs that have not yet been incurred, but will be incurred in the future based on decisions that have already been made?

Food & beverage sales 2. Art sales commissions

What are the two sources of revenue for Rebecca's coffeehouse?

A. Only variable production costs. Product costs under variable costing include direct materials, direct labor, and variable factory overhead. Each is a variable production cost.

What costs are treated as product costs under variable costing? A. Only variable production costs. B. All variable costs. C. Only direct costs. D. All variable and fixed manufacturing costs.

Value-added cost

What is a cost that, if eliminated, would reduce the actual or perceived value or utility (usefulness) customers experience from using the product or service?

Strategy map

What is a diagram that describes how an organization creates value by connecting strategic objectives in explicit cause-and-effect relationships with each other in the financial, customer, internal-business-process & learning-and-growth perspectives?

Trigger point

What is a strategic objective where many ties spur out from it, resulting in the achievement of many strategic objectives?

Value engineering

What is a systematic evaluation of all aspects of the value chain, with the objective of reducing costs & achieving a quality level that satisfies customers

Sales - COGS (Product costs) = Gross Profit - SG&A Expenses (Period costs) = Net Income

What is the income statement format under absorption costing?

Sales - Variable Manufacturing Overhead - Variable SG&A Expenses = Contribution Margin - Fixed Manufacturing Overhead - Fixed SG&A Expenses = Net Income

What is the income statement format under variable costing?

1. Expected to occur in the future 2. Differ among alternatives

What two factors make a cost or revenue relevant?

Price recovery

When Company Q is able to use fewer inputs in Year 2 to achieve the same output as in Year 1, this situation is reflected in the _________________ Component.

D. Ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit. Absorption and variable costing differ in their treatment of fixed overhead: It is capitalized as inventory under absorption costing and not under variable costing. Thus, the difference in operating income between the two can be explained by the difference between the ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit.

When comparing absorption costing with variable costing, the difference in operating income can be explained by the difference between the A. Ending inventory in units and the beginning inventory in units, multiplied by the unit sales price. B. Units sold & the units produced, multiplied by the unit sales price. C. Units sold & the units produced, multiplied by the budgeted variable manufacturing cost per unit. D. Ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit.

C. A manager who is evaluated based on variable costing operating profit would be tempted to increase production at the end of a period in order to get a more favorable review.

When comparing absorption costing with variable costing, which of the following statements is not true? A. Under absorption costing, operating profit is a function of both sales volume and production volume. B. When sales volume is more than production volume, variable costing will result in higher operating profit. C. A manager who is evaluated based on variable costing operating profit would be tempted to increase production at the end of a period in order to get a more favorable review. D. Absorption costing enables managers to increase operating profits in the short run by increasing inventories.

B. Depreciation. Because depreciation is expensed whether or not the special order is accepted, it is irrelevant to the decision. Only the variable costs are relevant.

When considering a special order that will enable a company to make use of currently idle capacity, which of the following costs is irrelevant? A. Variable overhead. B. Depreciation. C. Direct labor. D. Materials.

Goal congruence

When individuals and groups work toward achieving the organization's overall goals

B. Revenues over variable costs. Contribution margin is the difference between revenues and variable costs. No distinction is made between variable product costs and variable selling costs; both are deducted from revenue to arrive at CM.

When using a variable costing system, the contribution margin (CM) discloses the excess of A. Projected revenues over the breakeven point. B. Revenues over variable costs. C. Revenues over fixed costs. D. Variable costs over fixed costs.

Planning & design stage

When using target costs, cost reduction is the focus at which stage of the product life cycle?

D. All of these

Which of the elements increased in 2005 at Southwest? A. Miles flown per passenger B. Available Passenger Miles C. Market size D. All of these E. None of these F. Market share

A. Divisional managers in multinational companies should exert their autonomy and negotiate for transfer prices that benefit their own divisions

Which of the following IS NOT a recommendation of the authors of "Multinational Transfer Pricing" in regard to multinational companies and the risk of "tax avoidance" penalties? A. Divisional managers in multinational companies should exert their autonomy and negotiate for transfer prices that benefit their own divisions B. Transfer prices between multinational divisions should be set as if the transaction were "an arm's length" transaction C. Multinational companies are motivated to set transfer prices such that the division which operates in a "low tax rate" company recognizes more of the profit. D. Transfer prices between multinational divisions should be set at market price in order to avoid "tax avoidance" penalties

A. Decrease in the average stage length of flights

Which of the following NEGATIVELY impacts the PRODUCTIVITY COMPONENT? A. Decrease in the average stage length of flights B. Increase in the miles flown per passenger C. Increase in the passenger load factor D. All negatively impact

D. Customer

Which of the following balanced scorecard perspectives examines a company's success in targeted market segments? A. Financial B. Internal Business C. Learning and Growth D. Customer

C. A firm will better understand which steps in the production process are not adding value

Which of the following benefits will not be achieved with Customer Profitability Management? A. All of these are benefits gained from customer profitability management B. A firm will better understand the relationship between the behaviors of customers and its costs. C. A firm will better understand which steps in the production process are not adding value D. A firm will better understand which customers are contributing to profits & which customers are eroding profits E. A firm will replace intuition with facts about its customer base

D. Cost of fuel

Which of the following category of costs had the largest negative impact on the operating income of SW in 2005? A. Flight-related costs B. All had about the same negative impact C. Passenger-related costs D. Cost of fuel

C. Productivity

Which of the following components was positively impacted by the fact that SW flew "fuller" planes in 2005? A. Growth Component B. Price Recovery C. Productivity

A. II only. Absorption costing includes all manufacturing costs, both fixed and variable, in the cost of production. This method is required under GAAP for external reporting purposes and under the Internal Revenue Code for tax purposes. The variable costing method is useful for calculating the contribution margin and is important for internal reporting, but it is generally irrelevant to outside financial statement users.

Which of the following costing methods provide(s) the added benefit of usefulness for external reporting purposes (GAAP)? I. Variable. II. Absorption. A. II only. B. Neither I nor II. C. I only. D. Both I and II.

B. Firms calculate each "cost to serve" item allocated to Customer A relative to revenues earned for Customer A

Which of the following does best describes the common-sizing technique often used within Customer Profitability Management? A. Firms calculate each "cost to serve" item allocated to Customer A relative to "costs to serve" for all customers. B. Firms calculate each "cost to serve" item allocated to Customer A relative to revenues earned for Customer A C. Firms calculate the revenues earned from Customer A relative to the revenues earned from all customers D. Firms use a horizontal (rather than vertical) approach when common-sizing

A. All of these

Which of the following increased due to growth in Revenue Passenger Miles? A. All of these B. Passenger-related costs C. Fuel costs D. Flight-related costs

D. # of new products

Which of the following is an appropriate measure within the Learning & Growth perspective? A. % Increase in Sales B. % on-time delivery C. Market share D. # of new products

E. All of the above

Which of the following is not a benefit of decentralization: A. Creates greater responsiveness to the needs of a subunit's customers, suppliers & employees B. Leads to gains from faster decision-making by subunit managers C. Assists management development and learning D. Sharpens the focus of subunit managers and broadens the reach of top management E. All of the above

B. The names of the most profitable customers

Which of the following represents information that cannot be derived from viewing a whale graph? A. The percentage of customers who neither contribute to profits nor erode profits B. The names of the most profitable customers C. The % of customers who actually erode profits D. The total profit that could have been earned if the customer base only included those customers who contribute to profits

D. Determine the price customers are willing to pay for the product

Which of the following represents the 1st step in the target costing process? A. Determine the price the company wants to charge for the product B. Determine the cost of the product C. Determine the profit margin desired D. Determine the price customers are willing to pay for the product

D. Market Size and Fuel prices

Which of the following sets of factors would be considered external factors outside the control of SW? A. Market Share and Fuel prices B. Setting fares to cover cost increases and market size C. Fuel prices and setting fares to cover cost increases D. Market Size and Fuel prices

B. Neither I nor II.

Which of the following statement(s) is(are) true regarding the relationship between absorption costing net income and variable costing income? When production exceeds sales, variable costing income exceeds absorption costing net income. When sales exceeds production, absorption costing income exceeds variable costing net income. A. Both I and II. B. Neither I nor II. C. I only. D. II only.

B. All of these statements are correct

Which of the following statements are CORRECT in regard to SW flying longer flights in 2005? A. This attribute of an airline is referred to as stage length B. All of these statements are correct C. None of these statements are correct D. The PRODUCTIVITY component was positively affected E. SW achieved more efficient fuel usage.

C. Absorption costing avoids arbitrary allocation of fixed overhead to the output of the firm.

Which of the following statements does NOT support the use of absorption costing? A. The "matching" principle is more closely followed with absorption costing. B. Fixed costs are just as necessary for the production of output as variable manufacturing costs. C. Absorption costing avoids arbitrary allocation of fixed overhead to the output of the firm. D. Absorption costing provides more meaningful inventory valuations because all manufacturing costs are inventoriable.

B. Cost reduction should occur before production begins

Which of the following statements is CORRECT about cost control within target costing? A. Trying to reduce costs after production is easier than trying to do this before production B. Cost reduction should occur before production begins C. If target costs are not met, then companies will adjust the price accordingly D. The assumption is that all costs are necessary and add value

E. None of the above

Which of the following statements is CORRECT concerning absorption costing? A. An absorption costing income statement allows readers to evaluate the operating leverage of the company. B. When production > sales, absorption costing will show a lower net income than the net income associated with variable costing. C. Absorption costing treats all fixed costs as inventoriable costs. D. All of the above E. None of the above

B. None of these statements are correct

Which of the following statements is CORRECT concerning the SW PRICE RECOVERY COMPONENT? A. All of these statements are correct B. None of these statements are correct C. All airlines, regardless of their strategy & reputation, will raise fares enough to cover increases in costs D. Southwest Airlines covered its cost increases thru the fares charged to customers in 2005 E. Southwest Airlines is generally recognized as an airline which chooses a product differentiation strategy

E. None of these statements are Correct.

Which of the following statements is CORRECT concerning transfer prices between Division S (seller) and Division B (buyer)? A. To encourage operational efficiency in Division S, the transfer price when selling to Division B should be based on actual costs. B. Division managers are fully aware of the cost structure of other divisions and can see how decisions they make impact other divisions and the company as a whole. C. Divisional managers in a decentralized organization will tend to make decisions that improve overall company profits, even if the decision results in an operating loss for their division. D. All of these statements are Correct E. None of these statements are Correct.

A. SW increased its cost per ASM in 2005

Which of the following statements is INCORRECT in regard to the capacity component of the SW's strategic analysis of income? A. SW increased its cost per ASM in 2005 B. SW increased its Revenue Passenger Miles in 2005 C. SW increased its Available Seat Miles in 2005 D. None of these statements are incorrect - all correct statements

A. When production is greater than sales, absorption costing income is greater than variable costing income.

Which of the following statements is correct regarding the difference between the absorption costing and variable costing methods? A. When production is greater than sales, absorption costing income is greater than variable costing income. B. When production is less than sales, absorption costing income is greater than variable costing income. C. When production equals sales, absorption costing income is less than variable costing income. D. When production equals sales, absorption costing income is greater than variable costing income.

C. Increase in profit margin this year

Which of the following would not be a leading indicator that future sales are likely to exceed current sales? A. Increase in customer satisfaction ratings B. Increase in Market Share C. Increase in profit margin this year D. Increase in the # of new customers this year

D. Increase in the cycle time on the production floor

Which of these improvements would be found in the Internal Business section of the balanced scorecard? A. Increase in the % of employees receiving training B. Increase in profit margin C. Increase in customer satisfaction ratings D. Increase in the cycle time on the production floor

C. Transfer prices do not directly impact company profits but can lead to decisions which do negatively impact overall profits. This negative impact on overall company profits is insidious and may not be transparent to division managers or top management.

Which statement best describes the effect of transfer pricing between Division S (seller) and Division B (buyer) on overall company profits? A. Transfer prices relate to internal transactions (between Division S and Division B) and therefore do not impact overall company profits B. Transfer prices do not directly impact company profits but can lead to decisions which do negatively impact overall profits. This negative impact on overall company profits is obvious to division managers and top management. C. Transfer prices do not directly impact company profits but can lead to decisions which do negatively impact overall profits. This negative impact on overall company profits is insidious and may not be transparent to division managers or top management. D. Transfer pricing directly impacts overall company profits as well as the profits of Divisions S and B.

C. Firms should "fire the customers" who are expensive to serve

Which statement is INCORRECT concerning Customer Profitability Management? A. Firms can offset costs to serve by adding surcharges for costly services provided to customers B. Firms should target marketing efforts to "angel customers" C. Firms should "fire the customers" who are expensive to serve D. Firms should "play defense" - try to retain the good customers they have

E. In terms of percentage growth, the market share for SW grew in 2005 but not as significantly as did the market size

Which statement is INCORRECT concerning SW and the GROWTH component? A. Market share refers to SW's proportion of the overall market B. None of these statements are incorrect - all are correct C. Market size refers to the overall size of the market for the entire industry D. The increase in SW's market share also brought additional costs to SW E. In terms of percentage growth, the market share for SW grew in 2005 but not as significantly as did the market size

D. All of the above

Which statement is correct about variable costing? A. Variable costing is more straightforward and is useful for making short-term decisions. B. The variable costing income statement discloses information about the operating leverage of the firm. C. Variable costing is appropriate for internal users. D. All of the above E. None of the above

A. Customers require different amounts of resources of the firm

Which statement reflects the philosophy of customer profitability management? A. Customers require different amounts of resources of the firm B. Business facility costs should be allocated to customers C. The primary focus should be on the profitability of individual products D. Companies should focus on increasing the customer base and increasing sales

Reverse engineering

________________________ is a tear-down analysis performed by engineers with the intention of learning competitors' design, cost structure, quality, functionality, and processes

Arm-length transaction

_________________________ refers to the standard pertaining to transfer-pricing needed to satisfy tax law.