Managerial Accounting: Activity-Based Costing, Process Costing, and Cost -Volume-Profit Relationships

Uses a separate Work in Process account for each processing department.

A process costing system:

True

All other things the same, a decrease in variable expense per unit will reduce the break-even point.

False

All other things the same, in periods of increasing sales, net operating income will tend to increase more rapidly in a company with high variable costs and low fixed costs than in a company with high fixed costs and low variable costs.

False

In process costing, costs incurred in a department are not transferred to the next department.

False

In process costing, the equivalent units computed for materials is generally the same as that computed for direct labor.

False

Margin of safety is the excess of variable costs over fixed costs.

Net operating income will increase by the unit contribution margin for each additional item sold.

Once the break-even point is reached:

True

Operating Leverage is the measure of how sensitive net operating income is to a given percentage change in dollar sales.

Product-level activity

Parts administration is an example of a

Custom furniture manufacturing.

Process costing would be appropriate for each of the following except:

True

Product-level activities relate to specific products and typically must be carried out regardless of how many batches are run or units of product are made.

Facility-level

Property taxes and insurance are examples of costs that would be considered to be:

Batch-level activity

Setting up equipment is an example of a:

True

The break-even point occurs where profits is zero

The contribution margin.

The difference between total sales in dollars and total variable expenses is called:

True

The first-stage allocation in activity-based costing is the process by which overhead costs are assigned to activity cost pools

False

The following journal entry would be made in a process costing system when units that have been completed in the final processing department are transferred to the finished goods warehouse: Finished Goods XXX Materials XXX

True

The following journal entry would be made in a processing costing system when units that have been completed with respect to the work done in Processing Department Z are transferred from Processing Department Z to Processing Department Y: WIP Dept Y XXX WIP Dept Z XXX

True

The variable expense per unit is $12 and the selling price per unit is $40. Then the contribution margin ratio is 70%.

True

Under activity-based costing, the flow of costs through the inventory and other accounts and the journal entries to record this flow are the same as under traditional costing except that under activity-based costing several predetermined overhead rates are used rather than just one.

True

In order to use process costing, the output of a processing department should be homogeneous.

False

A contribution approach income statement can usually be easily prepared from the information contained in a corporation's published income statement.

Variable expense per unit increases

Assuming that the unit sales are unchanged, the total contribution margin will decrease if:

False

At the break-even point, variable expenses and fixed expenses are equal.

True

Batch-level activities are performed each time a batch of goods is handled or processed, regardless of the number of units in the batch

False

Contribution margin and Gross margin mean the same thing.

all variable costs.

Contribution margin is the excess of revenues over:

Direct labor cost plus manufacturing overhead

Conversion cost is:

True

Costs classified as batch-level costs should depend on the number of batches processed rather than on the number of units produced, the number of units sold, or other measures of volume

False

Direct labor-hours should never be used as a measure of activity in an activity-based costing system.

False

Facility-level activities are activities that support specific products.

300 equivalent units

If beginning work in process inventory contains 500 units that are 60% complete, then the inventory contains:

Work in Process

In a process costing system, manufacturing overhead applied is usually recorded as a debit to:

False

In a process costing system, overhead costs are traced to units of product as they are incurred.

False

In activity-based costing, Work in Process is credited when overhead is applied to products using activity rates.

True

In activity-based costing, a separate activity rate (i.e., predetermined overhead rate) is computed for each activity cost pool by dividing the estimated overhead cost in the activity cost pool by the total expected activity for the activity cost pool.

True

In activity-based costing, there are a number of activity cost pools, each of which is allocated to products using its own unique measure of activity.

False

When assigning costs to partially completed units in the ending work in process inventory, it is not necessary to consider the percentage completion of the units under the weighted-average method

The use of equivalent units of production.

Which of the following characteristics applies to process costing? A. the need for averaging Direct Labor costs. B. the use of equivalent units of production. C. separate, identifiable jobs. D. the use of a job costs card

high, considerable

Which terms would make the following sentence true? Manufacturing companies that benefit the most from activity-based costing are those where overhead costs are a _________ percentage of total product cost and where there is ___________ diversity among the various products that they produce.