ACC 222-Exam 2

Firm X and Firm Y are competitors within the same industry. Firm X produces its product using large amounts of direct labor. Firm Y has replaced direct labor with investment in machinery. Projected sales for both firms are 15% less than in the prior year. Which statement regarding expected profits is true?

Firms X and Y will lose the same amount of profit

Knob Corporation is a single product firm. The company predicts a selling price decrease next year will have no effect on sales volume (i.e., sales volume will be unchanged). What effect would this selling price decrease have on the company's break-even point next year?

Break-even will increase

In a segmented income statement, which of the following statements is true?

Segment margin is equal to contribution margin less direct fixed expenses.

Depreciation is a __________ cost, which is a cost that cannot be affected by a future action

Sunk cost

If sales revenue remains the same but margin of safety increases, then which of the following is true?

The break-even point has decreased

The difference between the actual cost of the input and its planned cost is

The total variance

If a company's total fixed cost decreases by $10,000, which of the following will be true?

The variable cost ratio will be unchanged

Which of the following would NOT be considered in a make-or-buy decision?

Unavoidable fixed costs

The standard direct labor hours allowed is computed as

Unit Labor Standard × Actual Output

The standard quantity of materials allowed is computed as

Unit Quantity Standard × Actual Output

Are variable costs avoidable?

Variable costs are typically pay as you go If we don't produce, we don't incur Usually avoidable, but there are exceptions!

If contribution margin is less than total fixed costs, then:

a loss will occur

Break-even revenue for the multiple-product firm can

be calculated by dividing total fixed cost by the overall contribution margin ratio.

An important assumption of cost-volume-profit analysis is that

both costs and revenues are linear functions, all cost and revenue relationships are analyzed within the relevant range, there is no change in inventories.

The variable overhead efficiency variance claims to measure

changes in variable overhead costs attributable to inefficient purchase of variable inputs

If a company increases its selling price by $2 per unit due to an increase of $2 per unit in its direct labor cost, then all else constant the break-even point in units for the firm will

not change

In the sell-or-process-further decision

the most profitable outcome may be to further process some separately identifiable products beyond the split-off point, but sell others at the split-off point.

The total variable overhead variance can be expressed as the sum of

the spending and efficiency variances

The total fixed overhead variance can be expressed as the sum of

the spending and volume variances

Which of the following is correct? The break-even point for a firm occurs when

total contribution margin equals total fixed costs

The amount of revenue required to earn a targeted profit is equal to

total fixed cost plus targeted profit divided by contribution margin ratio

If total fixed costs are less than contribution margin, then

total operating income will be positive

The two variances for fixed overhead are

volume and spending

The materials price variance is usually computed

when materials are purchased

Two criteria: Relevant costs and revenues must...

1.Occur in the future (i.e., they are not sunk costs), AND 2.Differ across alternatives under consideration

In the keep-or-drop decision, the company will find which of the following income statement formats most useful?

A segmented income statement in the contribution margin format

If the variable cost per unit goes down,

Contribution margin increases and Break-even point decreases.

Are fixed costs avoidable?

Direct FC are avoidable and some or all are typically relevant Common FC are unavoidable and typically not relevant

TRUE OR FALSE: Consistency demands that a cost that is relevant in one decision also be regarded as relevant in other decisions as well

FALSE

To be consistent, a cost that is relevant in one decision must also be considered relevant in other decisions as well.

FALSE

The use of fixed costs to extract higher percentage changes in profits as sales activity changes involves

degree of operating leverage

The contribution margin is the

difference between sales and total variable cost

Investigating variances from standard is

done if the variance is outside the control limits

Kinsi Corporation manufactures five different products. All five of these products must pass through a stamping machine in its fabrication department. This machine is Kinsi's constrained resource. Kinsi would make the most profit if it produces the product that:

generates the highest contribution margin per stamping machine hour

Kinsi Corporation manufactures five different products. All five products must pass through a stamping machine in the fabrication department. This machine is Kinsi's constrained resource. Kinsi would make the most profit if it produces the product that:

generates the highest contribution margin per stamping machine hour

Operating leverage is commonly measured as contribution margin divided by operating income. Suppose a firm's total fixed costs and contribution margin per unit remain constant when sales volume changes. If sales volume increases, then what is the effect of the sales volume increase on operating leverage?

operating leverage decreases

When a company faces a production constraint or scarce resource (e.g., only a certain number of machine hours are available), it is important to

produce the product with the highest contribution margin per unit of scarce resource.

A segment could be which of the following?

product, customer type, geographic region

Responsibility for the labor efficiency variance typically is assigned to

production

Responsibility for the labor rate variance typically is assigned to

production

Responsibility for the materials usage variance is usually assigned to

production

Responsibility for the materials price variance typically belongs to

purchasing

An ideal standard is one that

relies on maximum efficiency

Costs that cannot be affected by any future action are called

sunk costs

An unfavorable volume variance can occur because

the actual output was less than expected or practical capacity

The total variable overhead variance is the difference between

the actual variable overhead and the applied variable overhead

The variable overhead spending variance [Actual VOH - (SVOR x AH)] represents the difference between:

the actual variable overhead and the standard variable overhead based on actual hours used to produce the standard output

If the margin of safety is 0, then

the company is precisely breaking even.

In a make-or-buy decision,

the company would consider the purchase price of the externally provided good to be relevant.

The total fixed overhead variance is

the difference between actual and applied fixed overhead costs