Accounting Final

Strait Company has collected the following information: Cost to buy one unit $24 Production costs per unit: Direct materials $11 Direct labor $8 Variable manufacturing overhead $1 Total fixed manufacturing overhead $180,000 What level of production is needed for Strait to be indifferent between making or buying the part, assuming it can eliminate $130,000 of fixed costs?

A. 0 units B. 12,500 units C. 32,500 units D. 45,000 units Answer: C Response Feedback: The point of indifference is the point where the cost to make and the cost to buy are équal. With a total variable cost per unit of $20, the point at which the relevant cost to make equals $24 per unit is where relevant fixed cost per unit is $4, which is $130,000/$4, or 32,500 units.

The point where the total costs and the total revenues lines intersect provides information about the: A. Budgeted income B. Center point in the relevant range C. Number of units that must be sold to break even D. Profit maximizing sales volume

Answer: C Response Feedback: Break-even point is defined as the activity level where total revenue equals total cost.

A goal is best defined as: A. A definable and measurable objective B. The implementation of specific ideas C. The fundamental purpose of an organization D. The mission of an organization A goal is related to an objective, as opposed to mission and strategy which have to do with the fundamental purpose and implementation

Answer A Response Feedback: A goal is related to an objective, as opposed to mission and strategy which have to do with the fundamental purpose and implementation of a plan.

Which of the following is NOT one of the three strategic positions that Porter views as leading to business success? A. All things to all people B. Cost leadership C. Market niche D. Product or service differentiation

Answer: A Feedback: Michael Porter popularized the notion of "strategic positioning" in his book, Competitive Strategy, in which he identified three primary strategic positions: cost leadership, market niche, and product/service differentiation.

To compete on the basis of price, the seller must most carefully manage: A. Cost B. Product development C. Service D. Quality

Answer: A Response Feedback: Price competition depends on managing costs, including not only the initial selling price but the total cost of ownership throughout the life of the product.

Which of the following product costing methods produces the most precise product costing information? A. Activity-based costing B. Departmental overhead rate methods C. Organization-based costing D. Plant-wide overhead rates

Answer: A Response Feedback: Activity-based costing provides the most precise product costing information because unlike the other methods, it produces information about the activities, the quantities of activities, and the cost of activities that go into producing a product.

Irving Corp. cotained the following information from its accounting records: Sales = $18,000 Beginning Finished Goods Inventory = $10,500 Ending Finished Goods Inventory = $8,500 Cost of Goods Sold = $10,000 Ending Work-in-Process Inventory = $9,500 The Cost of Goods Manufactured this period equals: A. $8,000. B. $9000. C. $10.000. D. $11,500.

Answer: A Response Feedback: Beginning Finished Goods Inventory ($10,500) plus Cost of Goods Manufactured ($8,000) minus ending Finished Goods Inventory ($8,500) equals cost of goods sold (10,000)

The total contribution margin at the break-even point: A. Equals total fixed costs B. Is zero. C. Is greater than total variable costs D. Plus total fixed costs equal total revenues

Answer: A Response Feedback: Contribution margin is defined as total revenue minus total variable costs; therefore, at break-even point contribution margin is sufficient to cover fixed costs but provide no profit.

Which of the following tasks does NOT pertain to job-costing? A. Computing equivalent units B. Computing predetermined overhead rates C. Computing cost of goods sold D. Computing ending work-in-process inventory

Answer: A Response Feedback: Equivalent units calculation is a characteristic of process costing, not job costing.

Partially completed goods that are in the process of being converted into a finish product are defined as: A. Work-in-process inventories. B. Conversion inventories. C. Raw materials inventories D. Operational inventories.

Answer: A Response Feedback: Goods in process that have not been completed are referred to as work-in-process inventories.

An outlay cost is not relevant if it: A. Does not differ under the decision alternatives at hand B. Is under $10.000 or if it is less than 2% of sales C. Not an opportunity cost D. Sunk

Answer: A Response Feedback: If an outlay cost will be incurred under all competing alternatives, then it is not relevant.

Joint costs are: A. Costs incurred prior to the split-off point when producing products that appear simultaneously B. Most often found in companies that further process the final output of other manufacturing firms C. Relevant to decisions to sell joint products or to process them further. D. Separately identifiable at the split-off point.

Answer: A Response Feedback: Joint costs are the costs that are common to all of the joint products that are incurred prior to split-off. They are irrelevant in the decision to process further.

Which of the following views of product costs is consistent with financial reporting requirements? A. Product costs are all costs incurred in the process of manufacturing products, even if they are only indirectly related to the production process. B. Product costs are all labor and materials costs that are incurred in the process of manufacturing products. C. Product costs are all costs directly incurred in the manufacturing and selling of the product. D. Product costs include all costs incurred throughout the value chain.

Answer: A Response Feedback: Product costs in the financial statements include all cost related to the manufacturing function, including both direct and indirect manufacturing costs. Non-manufacturing costs are considered to be period costs.

Step costs: A. Are constant within certain ranges of activity but differ outside those ranges of activity B. Are variable within narrowly defined ranges of activity, but constant over wider ranges of activity C. Have no relation to number of units produced D. Increase with each additional unit produced

Answer: A Response Feedback: Step costs behave as fixed costs within a relatively narrow range, but increase to a higher level when that range is exceeded. Typical example of step costs is an inspection cost where each inspector can handle a fixed volume of product.

Strategic Position Analysis is best defined as: A. An organization's basic way of competing to sell products and services B. Fundamental choices about the size and scope of operations and technologies C. The formulation of a program for a specific goal D. The process of making the organization into a well ordered whole

Answer: A Response Feedback: Strategic position analysis involves the fundamental choices companies make for positioning itself in the market in relation to competitors.

A basic assumption of the cost-volume-profit model is that A. All costs can be accurately classified as either fixed or variable B. Cost drivers can be organized into unit-level, batch level, product-level and facility-level factors C. Higher volumes of product require lower prices D. The mix of products changes over time

Answer: A Response Feedback: The basic CVP model requires all costs to be treated as either fixed or variable.

Which of the following accounts increases when raw materials are used? A. Finished Goods Inventory B. Raw Materials Expense C. Raw Materials Inventory D. Work-in-Process Inventory

Answer: D Response Feedback: Using raw materials is recorded as a decrease in Raw Materials Inventory and an increase in Work-in-Process Inventory.

The second stage of an activity-based costing two-stage product costing model includes: A. Assignment of cost pools to products B. Assignment of cost pools to cost centers C. Assignment of resource costs to cost pools D. All of the above

Answer: A Response Feedback: The first stage of an ABC product costing system is to determine the resource costs that should be assigned to each cost pool, and the second stage is to assign the activity cost pools to the products.

Which of the following is NOT a key element of any indirect cost allocation system? A. an accurate measurement of direct labor hours B. a cost allocation base C. a cost objective D. a cost pool

Answer: A Response Feedback: The key elements of a cost allocation system are cost pool, cost objective, and cost allocation base.

When finished goods are sold, there is an increase in which of the following accounts? A. Cost of Goods Sold B. Cost of Goods Manufactured C. Finished Goods Inventory D. Work-in-Process

Answer: A Response Feedback: The sale of finished goods is recorded as an increase in the Cost of Goods Sold account balance and a decrease in the Finished Inventory Account balance.

Which of the following costs is best classified as fixed costs with respect to volume? A. Depreciation of a copy machine in the Human Resource Department B. Electricity used to heat, light, and cool a hospital C. Parts used in manufacturing digital cameras D. Salaries of quality inspectors in a production facility

Answer: A Response Feedback: Typically, depreciation cost on assets (buildings and equipment) in a staff department such as Human Resources remains constant irrespective of the volume of output.

A unit contribution margin measures: A. The difference between price and variable cost per unit B. The difference between sales and cost of goods sold on a unit basis C. The difference between unit sales and total costs per unit D. The percentage difference between sales and cost of goods sold

Answer: A Response Feedback: Unit selling price minus unit variable cost is the definition of unit contribution margin.

Using the weighted average method, whenever units in process are produced to a different percentage of completion for materials and labor, this creates a condition where: A. The number of equivalent units in process will invariably be different for materials and conversion costs. B. The cost per equivalent unit for materials and conversion will be equal. C. It is inappropriate to use the process costing method. D. None of the above.

Answer: A Response Feedback:Anytime the percentage of completed is different for materials and conversion costs for the units in process during the period, the equivalent completed units will be different for these two cost components. Often all materials costs are added at the beginning of the process, but conversion costs (labor and overhead) are added throughout the process, so it is common for the number of equivalent units for materials cost to be larger than the equivalent units for conversion costs.

_____are specific units of work performed to serve customer needs that consume costly resources. A. Activity cost drivers B. Customer cost drivers C. Organizational cost drivers D. Structural cost drivers

Answer: A Response Activity cost drivers are defined as specific units of work (activities) performed to serve customer needs that consume resources. Examples would include moving raw materials, setting up machines to convert raw materials into products, inspecting, and shipping goods.

The following information pertains to Charter Company: Service Departments: personnel, maintenance, Producing Departments: fabrication, assembly Budgeted overhead: $80,000, $144,000, 280,000, $320.000 Direct labor-hours: 4,000, 5,000, 16, 000, 20,000 Machine-hours: 0,0, 24,000, 16,000 Number of employees: 8, 10, 30, 50 Charter Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and maintenance costs are allocated based on machine-hours. Predetermined overhead rates for Fabrication and Assembly are based on direct labor-hours. (Round amounts to dollars.) If the direct method is used to allocate service department costs, the predetermined overhead rate for the Assembly Department (rounded to 2 decimal places) would be: A. $16.00 B. $21.38 C. $22.89 D. $24.78

Answer: B Response Feedback: Personnel allocated to Assembly = 50/80x $80,000 = $ 50.000 Maintenance allocated to Assembly = 16.000/40.000x $144.000 = 57,600 Total service department costs allocated to Assembly= $107,600 Assembly departmental overhead= 320,000 Total Assembly Department overhead= $427,600 Assembly direct labor hours + 20.000 Assembly Department Predetermined Overhead Rate= $21/38

Rhinestone Company has a sales budget for next month of $300,000. Cost of goods sold is expected to be 40 percent of sales. All goods are purchased in the month used and paid for in the month following purchase. The beginning inventory of merchandise is $10,000, and an ending inventory of $12,000 is desired. Beginning accounts payable is $76,000. The cost of goods sold for next month is expected to be: A. $80,000. B. $120.000. C. $180.000. D. $178,000

Answer: B Response Feedback: 40% x $300,000 = $120,000

A profit-volume graph: A. Is most useful in situations where there are multiple cost drivers B. Plots both revenue and total cost on the Y axis C. Plots contribution margin on the Y axis and volume on the X axis D. Plots total profit on the Y axis against total volume on the X axis.

Answer: B Response Feedback: A cost-volume-profit graph plots total activity volume on the X axis and total revenue and total cost on the Y axis.

The following procedure performed by a candy manufacturer is the BEST example of a product level activity within a manufacturing cost hierarchy: A. Cleaning the mixing machine for the next production run of candy, a special Halloween candy B. Developing an advertising campaign for a special Halloween candy C. Inspecting the quality of the candy produced during one of the special Halloween package production runs D. Resetting the packaging equipment to wrap a special 36-count Halloween package

Answer: B Response Feedback: A product-level activity is one that occurs as a result of producing a new product, such as product design activities, or developing an advertising campaign for a new product.

In a contribution income statement: A. All fixed costs are grouped together and subtracted from gross profit B. Net income plus all fixed expenses equal the contribution margin C. The contribution margin is computed as the difference between sales revenue and fixed costs D. The gross margin is computed as the difference between sales revenue and the cost of goods sold

Answer: B Response Feedback: Contribution margin minus fixed costs equals net income; therefore net income plus fixed costs equals contribution margin.

The following procedure performed by a dairy is the BEST example of a unit level activity within a manufacturing cost hierarchy: A. Delivering dairy products to a grocery store B. Filling milk into half-gallon cartons C. Homogenizing milk in specially designed tanks D. Receiving milk from farms

Answer: B Response Feedback: Filling half-gallon cartons is a unit-level activity; whereas, the other items listed are batch-level activities.

Facility level activities of an organization would NOT include: A. Building maintenance B. Machine set up C. Property taxes D. The production supervisor's salary

Answer: B Response Feedback: Machine set-up is typically a batch-level activity since there is normally not a set up of equipment for each unit, but for batches of units. Building maintenance, property taxes, and supervisors' salaries are typical facility-level costs that exist because of the existence of the facility. They are the same as fixed costs in a unit-level cost estimation model.

Future costs that differ among competing alternatives are: A. Absorption costs. B. Relevant costs. C. Replacement costs D. Variable overhead costs

Answer: B Response Feedback: Only future costs that are different among competing alternatives are relevant.

The best way to reduce operating leverage is to: A. Substitute direct materials for direct labor B. Substitute direct labor for automated equipment C. Substitute equity for debt D. Substitute in-house direct labor with outsourced labor

Answer: B Response Feedback: Operating leverage is reduced by reducing fixed costs; therefore, by replacing automated equipment (i.e., depreciation, etc.) which is a fixed cost, with direct labor which is a variable cost, the portion of fixed costs will be reduced and operating leverage will be reduced.

The number of fully completed units that equates with a given number of partially completed units is referred to as the: A. Number of units in ending finished goods inventory. B. Equivalent completed units. C. The number of units sold this period. D. The number of units in ending Work-in-Process inventory.

Answer: B Response Feedback: Process costing calculates costs based on equivalent units of completed production, which is the number of finished units this is equivalent to a Feedback: given number of partially completed units. For example, two units 50% completed are equivalent to 1 equivalent completed unit.

The Chat Company manufactures 2,500 telephones per year. The full manufacturing costs per telephone are as follows Direct materials $ 4 Direct labor 16 Variable manufacturing overhead 10 Average fixed manufacturing overhead 10 Total $40 The Electric Assembly Company has offered to sell Chat 2,500 telephones for $34 per unit. If Chat accepts the offer, $20,000 of fixed overhead will be eliminated. Chat should: A. Buy the telephones; the savings is $5,000. B. Buy the telephones; the savings is $10.000. C. Buy the telephones; the savings is $15,000. D. Make the telephones; the savings is $10,000.

Answer: B Response Feedback: Relevant cost to manufacture = (4 + 16 + 10) + (20,000/2,500) = $38 per unit. By buying the phones, the savings is $4 per phone or $10,000

Which of the following statements describes the typical effect of creating a large number of refined activity cost pools for a given costing application? A. A complex ABC system with numerous cost pools provides substantial cost improvement over a smaller system with only seven to ten cost pools. B. A system containing a large number of cost pools will not tend to exhibit substantial cost accuracy over a system containing seven to ten cost pools C. With the aid of a computer, every public company should strive to develop as many cost pools as possible because there is virtually no disadvantage to doing so. D. Employees normally develop a deep appreciation for the complexity of a large, tedious ABC system.

Answer: B Response Feedback: Research on ABC systems has shown that refining the cost measurements by increasing the number of cost pools beyond a reasonable point does not result in significant increase in cost accuracy.

The three analyses that comprise strategic cost management include each of the following except: A. Cost driver analysis B. Ratio analysis C. Strategic position analysis D. Value chain analysis

Answer: B Response Feedback: Strategic cost management has been defined to include all of the above except ratio analysis.

Which of the following budgets tends to tie into all of the other budgets? A. The operating budget B. The cash budget C. The sales budget D. The purchasing budget

Answer: B Response Feedback: The cash budget uses information from all the other budgets.

Costs are classified according to behavior on a: A. Abrams-Ingram cost grid B. Contribution income statement C. Functional income statement D. Statement of financial position

Answer: B Response Feedback: The definition of a contribution income statement is that classifies costs by variable and fixed, and shows both contribution margin and income.

The break-even point in sales dollars may be computed as: A. Fixed costs divided by contribution margin per unit B. The difference between total contribution margin and operating profit divided by the contribution margin ratio C. Fixed costs divided by the difference in unit price and unit variable costs D. Total contribution margin divided by the unit contribution margin per unit Response Feedback: The difference between contribution margin and operating profit is equal to fixed costs, and fixed costs divided by the contribution margin ratio (or percent) equals break-even point in sales dollars.

Answer: B Response Feedback: The difference between contribution margin and operating profit is equal to fixed costs, and fixed costs divided by the contribution margin ratio (or percent) equals break-even point in sales dollars.

The Titanic hit an iceberg and sank. In deciding whether or not to salvage the ship, its book value is a(n): A. Relevant cost. B. Sunk cost. C. Opportunity cost. D. Discretionary cost.

Answer: B Response Feedback: The past cost of the ship has already been incurred and is an irrelevant sunk cost.

The contribution margin is: A. The difference between sales price and total variable cost B. The difference between total sales and total cost of goods sold C. The difference between total revenue and total variable cost D. Total sales minus total cost of goods sold

Answer: C Response Feedback: Contribution margin is calculated as revenues minus variable costs. It can be calculated on either an aggregate or per-unit basis.

Lessard Corporation manufactures a product with the following full unit costs at a volume of 2,000 units: Direct materials $ 400 Direct labor 160 Manufacturing overhead (30% variable) 300 Selling expenses (50% variable) 150 Administrative expenses (10% variable) 140 Total per unit $1,150 A company recently approached Lessard's management with an offer to purchase 200 units for $850 each. Lessard currently sells the product to dealers for $1,300 each. Lessard's capacity is sufficient to produce the extra 200 units. No selling expenses would be incurred on the special order. If Lessard's management accepts the offer, profits will: A. Decrease by $60,000 B. Increase by $37,200 C. Increase by $132,800 D. Not change

Answer: B Response Feedback: The relevant costs per unit to make the additional units are direct materials, $400, direct labor, $160, manufacturing overhead, $90, and administrative costs, $14, for a total relevant cost of $664, and a profit per unit of $186. The total increase in profit would be $186x 2,000, or 37,200

Which of the following is one of the three major components of product costs? A. Research and development expenses B. Manufacturing overhead C. Marketing costs related to specific products D. Selling, general and administrative expenses

Answer: B Response Feedback: The three major components of product cost are direct materials, direct labor, and manufacturing overhead.

The following information pertains to the Gulf Coast Company Units Work-in-process, May 1 (35 percent complete) 4,000 Started in January 20,000 Work-in-process, May 31 6,000 Materials are added at the beginning of the process. If equivalent units in process for conversion using the weighted average method was 19,800, ending work-in- process at May 31: A. was 15.0 percent complete. B. was 30.0 percent completé. C. was 25.0 percent complete. D. was 97.5 percent complete.

Answer: B Response Feedback: Units in Process were 4,000 + 20,000 = 24,000, and units in ending inventory were 6,000 units; therefore, 18,000 (or 24,000 - 6,000) units were completed and transferred to finished goods. Consequently, if the equivalent units in process was 19,800 and 18,000 were entirely completed duringthe period, the difference of 1,800 represents the equivalent value of the 6,000 units in ending inventory, which must have been 30% completed (ie: 6000*0.3= 1800)

Process service costing measures the average cost of: A. All services performed by the company in a given period. B. Identical or similar services performed by the company in a given period C. Activities for activity based costing overhead rates. D. Services received from the company's vendors.

Answer: B Response In process costing, costs are averaged for a given period, as opposed to being calculated for a given job or batch. Therefore, in costing services using process costing (such as a bank calculating the cost of processing deposits or checks), the average cost per unit is calculated for all such services performed during the period (week, month, etc.)

Which of the following statements concerning zero-based budgeting is true? A. Zero-based budgeting specifies that every line item must be rounded to the nearest thousand dollar increment. B. Zero-based budgeting specifies that every expenditure must be justified. C. Zero-based budgeting is a variation of the incremental approach. D. Zero-based budgeting is mainly used to assess research and development departments and similar departments where the relationship between input and outputs is weakest.

Answer: B Response feedback: Zero-based budgeting is a minimum level approach that begins with a zero budget and requires justification of all budgeted amounts above zero.

Elmira Corporation sells 2,000 units of product Y per day at $1.00 per unit. Elmira has the option of processing the product further for additional costs of $500 per day to produce product Z, which sells for $1.30 per unit. If Elmira processes product Y further to produce product Z, the company's net income will: A. Decrease by $100 per day B. Decrease by $500 per day C. Increase by $100 per day D. Increase by $600 per day

Answer: C Feedback: If processed further, revenue will increase by $0.30 × 2,000 units, or $600. With additional costs of processing of $500, profit will increase by $100 per day.

Sales mix refers to: A. The portion of unit variable costs that are consumed by each product B. The absolute portion of total variable costs consumed by each product C. The relative portion of unit or dollar sales that are derived from each product D. None of the above

Answer: C Feedback: Sales mix is a term defined as the percentage of total sales generated by each product for a company that offers multiple products to customers.

Which one of the following tools of analyses is NOT commonly used in cost estimation? A. High-low estimation B. Least-squares regression C. Linear programming D. Scatter diagrams

Answer: C Linear programming is a mathematical model used for determining the best utilization of limited resources; it is not a cost estimation

Rozella's income statement is as follows: Sales (10,000 units) $80.000 Less variable costs - 48.000 Contribution margin $32,000 Less fixed costs -24,000 Net income $ 8.000 What is the contribution margin ratio? A. 10 percent B. 30 percent C. 40 percent D. 60 percent

Answer: C Response Feedback: $32,000 divided by $80,000 equals 40 percent.

Activity-based costing systems tend to________high-volume, low-complexity products. A. Undercost B. Overcost C. Accurately cost D. None of the above

Answer: C Response Feedback: ABC systems tend to more accurately cost high-volume, low-complexity products as well as low volume, high-complexity products. Traditional cost systems tend to overcost high-volume, low-complexity products and undercost low volume, high-complexity products.

Which of the following factors is NOT an advantage of preparing operating budgets? A. Improved communications B. Improved basis of performance evaluation C. Increased employee loyalty D. Improved planning

Answer: C Response Feedback: All of the above are cited in the text as advantages of budgeting, except for c., increased amounts of employee loyalty. Whether budgeting will increase Feedback: employee loyalty would depend on management's approach to budgeting and whether all levels of employees participate in the process.

The break-even point is: A. The volume of activity where all of the variable costs, but none of the fixed costs are recovered B. Where total fixed costs equal total variable costs C. Where total revenues equal total costs D. All of the above

Answer: C Response Feedback: Break-even point is defined as the activity level where total revenue equals total cost.

The following procedure performed by a home oil delivery company is the BEST example of a unit level activity within a customer cost hierarchy: A. Opening an account for a new customer B. Processing monthly customer billings C. Pumping home heating oil into a customer's oil tank D. Purchasing a new delivery truck

Answer: C Response Feedback: In a customer cost hierarchy, activities are classified based on units, orders, customers, and facilities. A unit-level activity is one that is performed for each unit sold. Therefore, pumping home heating oil into a customer's oil tank is a unit-level activity. Opening an account for a new customer, and processing customer billings are either customer-level or order-level activities, and purchasing a new truck is a facility level activity.

When management directs attention only to those activities not proceeding according to plan, they are engaging in: A. Activity-based management B. Organization-based management C. Management by exception D. Just-in-time management

Answer: C Response Feedback: Management by exception refers to evaluating performance in comparison to plans and addressing only those issues that did not conform to plans.

Which of the following methods of allocating service department costs uses an approach that is based strictly on the amount of services provided to the producing departments? A. activity based costing B. organizational based costing C. the direct method D. both the direct and step methods

Answer: C Response Feedback: Only the direct allocation method disregards all services rendered by service departments to other service departments.

A decision to work closely with a limited number of suppliers for the purpose of ensuring that the proper materials are available at the optimal time is an example of: A. An activity cost driver B. A batch level cost driver C. An organizational cost driver D. A structural cost driver

Answer: C Response Feedback: Organizational cost drivers are choices that a company makes regarding the organization of activities. A decision to work with a limited number of suppliers is an example of an organizational cost driver.

Fixed costs do not respond to: A. Capital expenditures made by the company B. Changes in committed expenditures C. Short-term changes in the amount of activity D. Discretionary investments in the company

Answer: C Response Feedback: Over the short term, fixed costs are indifferent to activity level changes. For example the cost of property taxes on a building would not change based on activity volume differences.

Which of the following aspects related to budgeting and human behavior is NOT correct? A. Budgets often produce strong reactions in people. B. Line managers will not respect the budget if they perceive a lack of commitment by top management. C. A disadvantage of the use of budgets is that they always decrease employee motivation. D. Personnel who do not participate in budget preparation are likely to lack a commitment in achieving their part of the budget.

Answer: C Response Feedback: Properly used, budgeting can be a very positive motivator.

The point in the production process where joint products become separately identifiable is called: A. The conversion point B. The point of sale. C. The split-off point D. The throughput point.

Answer: C Response Feedback: Split-off point is the term used to describe the point in a process where two or more products split off and become separate products.

Which of the following is a key consideration in selecting an allocation base? A. The allocation base should have an indirect association with the cost objective. B. The allocation base should be difficult to measure. C. There should be logical association between the allocation base and the incidence of costs. D. The allocation base should be out of the control of management.

Answer: C Response Feedback: The allocation base should be logically associated with the costs in the allocation pool. For instance, building costs logically associate with the amount of building space, which is often used to allocate building costs.

Activity-based costing's primary benefit is that it provides: A. Absolutely accurate product costing information B. Data for external financial reporting purposes C. More precise cost data for internal decision-making purposes D. All of the above

Answer: C Response Feedback: The primary benefit of ABC is that is improves cost precision which is useful for a variety of internal decision purposes such as pricing and for evaluating internal processes.

In order to be useful to managers, management accounting reports: A. Should be prepared according to Generally Accepted Accounting Principals B. Should be prepared according to the stated Institute of Management Accounting guidelines C. Should be prepared to meet the specific needs of decision makers D. Should not be prepared prior to the end of a fiscal reporting period

Answer: C Response Feedback: There are no specific standards for preparing managerial accounting reports. They should be tailored to meet the needs of each individual organization.

Which of the following is NOT a common approach to developing a budget? A. The incremental approach B. The input/output approach C. The qualitative approach D. The minimum level approach

Answer: C Response Feedback: There is no such thing as the qualitative approach to budgeting.

_______are the net cash inflows that could be obtained if the resources committed to one action were used in the most desirable other alternative. A. Gross profits B. Outlay costs C. Opportunity costs D. Net contributions

Answer: C Response Feedback: This is the textbook definition of the term "opportunity cost."

Which of the following inventories results in recording an expense when its asset account is reduced in the accounting system? A. Raw materials B. Work in process C. Finished goods inventory D. Both a. and b.

Answer: C Response Feedback: When inventories are sold from finished goods, the account Finished Goods Inventory is reduced and Cost of Goods Sold Expense is recorded.

Which of the following statements is TRUE when making a decision between two alternatives? A. Fixed costs are never relevant. B. Taxes are never relevant. C. Variable costs may not be relevant when the decision alternatives have the same activity levels. D. Variable costs are not relevant when the decision alternatives have different activity levels.

Answer: C Response Feedback:Future fixed costs and taxes are relevant if they differ among alternatives, as are variable costs for alternatives with different activity levels Variable costs are relevant if competing alternatives have different activity levels.

The scatter diagram method of cost estimation: A. Is influenced by extreme observations B. Is superior to other methods in its ability to distinguish between discretionary and committed fixed costs C. Provides a measure of the goodness of fit D. Requires the use of judgment

Answer: D Feedback: The scatter diagram method depends of visual observation of the data points on a graph to fit the cost curve to the data. The position of the curve on the graph depends on the judgment of the person observing the data points.

The Lightening Delivery Service has the following information about its truck fleet miles and operating costs: Year 2004 250,000 miles, 160,000 operating costs 2005 300,000 miles, 175,000 operating costs 2006 350,000 miles, 200,000 operating costs What is the best estimate of fixed costs for fleet operating expenses in 2007 using the high-low method? A. $100.000 B. $85.000 C. $75,000 D. $60,000

Answer: D Response Feedback: ($200,000 - $160,000 /(350,000 - 250,000) = $0.40 per mile variable cost, $200,000 - (350,000 × $0.40) = $60,000

World-class companies must continuously struggle to improve performance in the dimension(s) of: A.Price/cost B. Service C. Quality D. All of the above

Answer: D Response Feedback: A "world-class" company is one that can compete globally on the basis of not just price/cost, but also on the basis of service and quality.

When a job is completed in a job order costing system, the final cost of the job is determined by summing up: A. The work-in-process inventory subsidiary ledgers. B. The statement of costs of goods manufactured. C. The finished goods activities report. D. The various costs on the job cost sheet.

Answer: D Response Feedback: A job cost sheet is used in a job costing system to accumulate all of the costs incurred to complete the job.

For which of the following products would job order costing be least likely to be used? A. Residential building B. Textbook printing C. Mortgage loan processing D. Newsprint paper Manufacturing

Answer: D Response Feedback: A newsprint manufacturing farility produces continuous rolls of paper for newspapers and uses process costing; whereas the cost of residential dwellings, textbooks, and mortgages are more likely to be accounted for using a job order cost system.

Which of the following costs are treated as part of the cost of product? A. Wages of plant security guards B. Insurance on the plant building and equipment C. Depreciation on the kitchen sink in the plant cafeteria D. All of the above are product costs

Answer: D Response Feedback: All expired costs associated with the manufacturing function are treated as product costs.

If a trucking company were operating at capacity, but had an opportunity to fill a one-time high volume special order, which of the following ramifications could occur? A. Lost revenues from regular customers B. Long-term revenue loss from customers who change service to competitors C. Questions from regular customers about commitment to service D. All of the above

Answer: D Response Feedback: At full capacity, accepting a one-time offer could have all these effects on current customers and related revenues.

Budgets improve A. Communication; profits B. Information; revenues C. Revenues; profits D. Communication; coordination

Answer: D Response Feedback: Budgeting invariably improves communication and coordination. It may or may not improve revenues and profits.

Which of the following are not important considerations in establishing a cost pool? A. The items pooled together should be relatively homogeneous. B. The items pooled together should have a logical cause-and-effect relationship to the allocation base used to assign the costs in the cost pool. C. Both a and b are important considerations. D. The items pooled together should all be directly traceable to the cost objectives.

Answer: D Response Feedback: Cost allocation pools consist of costs that cannot be traced to cost objectives; hence, the need to allocate these costs.

Which of the following is NOT included in work-in-process inventory? A. Direct materials costs B. Applied manufacturing overhead C. Direct manufacturing labor costs D. Sales commissions

Answer: D Response Feedback: Direct materials, direct labor, and applied manufacturing overhead are all product costs that are part of work-in-process. However, sales commissions cost is a period cost that is expensed in the period incurred.

The following information is available: Units in process, Sept. 1 (60 percent converted) Units in process, Sept. 30 (40 percent converted) Units started during the month 2.000 units 1,000 units 15,000 units Materials are added at the beginning of the process. How many equivalent units in process for conversion were there in Sept. using the weighted average method?

Answer: D Response Feedback: During the period there were 17,000 actual units in process (2,000 beginning plus 15,000 started) at some stage of completion and there were 1,000 units in ending inventory; therefore, 16,000 of the 17,000 units were completed during the period. The 1,000 ending units were 40% complete, representing 400 equivalent units in process, so the total equivalent units in process for conversion were 16,000 units completed plus 400 equivalent ending units, for a total of 16400 equivalent units in process.

Which of the following is a suggested technique for managing the budgeting process in a manner that increases employee motivation? A. Measure the budget against performance only when assessing poor performers. B. Never alter the budget. C. Top management should disassociate itself from the budget. D. Emphasize the budget as a planning device.

Answer: D Response Feedback: Emphasizing budgeting as a planning device typically leads to increased employee motivation; whereas, items a though c are budgeting approaches that are likely to lead to decreased employee motivation

Ethical behavior: A. Always involves choosing between actions that are clearly right or wrong B. Is best described as any actions that are permitted by law C. Is best guided by a policy of placing corporate performance above individual ends D. Is not guided by well-defined rules and is often subiective

Answer: D Response Feedback: Ethical behavior is not a matter only of determining actions that are clearly right or wrong, or that are legally permissible. What is legal may actually be unethical in some situations. Ethical behavior will not always be achieved merely by placing corporate performance above individual ends. Such behavior is typically not guided by a well-defined set of rules and regulations and is frequently subjective.

When is the direct method of allocating service department costs most likely to provide a reasonably accurate cost assignment? A. When the number of departments providing services is sufficiently large. B. When the total costs of each service department is approximately equal. C . When departmental costs are blurred by substantial interdepartmental usage among departments. D. When all producing departments are using approximately the same percentage of services of each servicing department.

Answer: D Response Feedback: If each department is using the same percentage of services of each service department, the direct, step and linear algebra method will produce approximately the same result.

Sales revenue minus the costs of direct materials is known as: A. Conversion costs B. Contribution margin C. Outlay costs D. Throughput

Answer: D Response Feedback: In the theory of constraints, the goal is to maximize throughput (revenue minus direct materials cost) by removing bottlenecks

Which of the following consequences would occur if the costs of service departments were NOT allocated to producing departments? A. Product costs would be understated. B. GAP requirements would not be met. C. Managers of producing departments may tend to over consume services. D. All of the above

Answer: D Response Feedback: Items a though c above are all consequences of not assigning service department costs to producing departments.

_________are costs that require future expenditures of cash or other resources. A. Accounts Payable B. Committed costs C. Opportunity costs D. Outlay costs

Answer: D Response Feedback: Only future costs that will be incurred are outlay costs, as opposed to past sunk costs.

This is an organizational cost driver for a discount department store chain: A. The decision to issue a purchase order for raw materials B. The decision to sale product globally versus only domestically C. The decision to price lower than a key competitor D. The decision to rearrange merchandise within a store

Answer: D Response Feedback: Organizational cost drivers are choices that a company makes regarding the organization of activities. Deciding on the arrangement of merchandise in a store would be an example of an organizational cost driver.

Which of the following statements about sunk costs is true? A. Sunk costs are the result of past decisions B. Sunk costs are never relevant to decisions (except for tax considerations) C. Sunk costs do not vary between decision alternatives D. All of the above

Answer: D Response Feedback: Since sunk costs have already been incurred in the past and cannot be reversed, they are the same for all alternatives and are never relevant.

All of the following are assumptions used in cost-volume-profit analysis, except: A. All costs are classified as fixed or variable B. The total cost function is linear C. The total revenue function is linear D. All of the above

Answer: D Response Feedback: The VP model assumes linearity of both the revenue and cost functions, and it assumes that all costs are either fixed or variable.

Which of the following is (are) the primary source(s) of information for the cash budget? A. The prior year's financial statements B. The capital budget C. The sales forecast D. The purchases and operating expense budgets

Answer: D Response Feedback: The cash budget includes cash receipts and disbursement information derived from other budgets, including the purchases and operating expense budgets.

Which of the following is (are) the primary source(s) of information for the cash budget? A. The prior year's financial statements B. The capital budget C. The sales forecast D. The purchases and operating expense budgets

Answer: D Response Feedback: The cash budget includes cash receipts and disbursement information derived from other budgets, including the purchases and operating expense budgets.

The following information is available pertaining to Bonita Division, that uses a plant-wide overhead rate based on machine hours: Overhead Mixing dept. Finishing dept. Total Overhead $30,000 $60,000 $90,000 Direct labor-hours 7,500 2500 10, 000 Machine-hours 2500 7500 10,0003 Production information pertaining to Job 101: Mixing Dept. Finishing Dept. Total Prime costs $5,000 $0 $5,000 Direct Labor-hours 250 0 250 Machine-hours 10 10 20 Units produced 500 0 500 What are the total overhead costs assigned to Job 101? A. $120 B. $200 C. $90 D. $180

Answer: D Response Feedback: The plant-wide rate for Bonita is $90,000 of overhead ÷ 10,000 machine hours = $9 per machine hour. The number of machine hours used to produce Job 101 was 20 hours × $9 per machine hour of overhead = $180 of overhead assigned to Job 101.

Using cost-volume-profit analysis, we can conclude that a 20 percent reduction in variable costs will: A. Not affect the break-even sales volume if there is an offsetting 20 percent increase in fixed costs B. Reduce the break-even sales volume by 20 percent C. Reduce total costs by 20 percent D. Reduce the slope of the total costs line by 20 percent

Answer: D Response Feedback: The slope of the total cost line is equal to the variable cost per unit of activity; therefore, if the variable cost per unit is increased by 20%, the slope of the total cost line will increase by 20%.

_________theory states: "Every process has a bottleneck and production cannot take place faster than it is processed through the bottleneck." A. Eaves Theory of Manufacturing B. Porter's Four Forces C. The Theory of Integrated Workflow D. The Theory of Constraints

Answer: D Response Feedback: The theory of constraints holds that the achievement of organizational goals will be maximized by removing the constraints, or bottlenecks, in the system or process by which that goal is pursued.

Joint products are: A. Any set of products that can use the same resources B. Products that create production bottlenecks C. Products that increase in value if sold as a package D. Two or more products simultaneously produced from a common set of inputs by a single process.

Answer: D Response Feedback: This is the textbook definition of a joint product.

Which of the following aspects of manufacturing must be understood in order to implement activity based costing in a production setting? A. The production process B. The activities that occur in the production process must be known. C. The cost drivers that generate activities within the production process. D. All of the above.

Answer: D Response Feedback: To implement an ABC system in a production setting an understanding of items a through care all essential.

The range of operations that falls within the capacity of the current level of fixed costs is referred to as the: A. Linear average B. Marginal range C. Operating range D. Relevant range

Answer: D Response Feedback: When developing a cost model for a firm or segment of a firm, that model is only relevant within the range of capacity of the fixed costs. For example if the current level of fixed cost of $10 million represents a capacity of 2 million units of output, that cost model cannot be used to estimate the cost of producing more than 2 million units.

The following procedure performed at the United States mint is NOT a batch level activity: A. Inspecting the first units produced to verify proper set-up B. Movement of manufactured coins to finishing stations C. Setting up machinery for the stamping process D. Stamping each individual coin

Answer: D Stamping each individual coin is an example of a unit-level activity since it occurs for each coin produced. All of the other items are examples of batch-level activities.

Which one of the following statements about difficulties of cost estimation is true? A. Data may not be based on normal operating conditions B. Linear relationships between total costs and activity levels may exist C. Both a. and b D. None of the above

Answer:A Response Feedback: When collecting data for cost estimation, it is important that activity and cost data are representative of typical operations. If data are collected for an operating period when conditions were not similar to expected future conditions, estimates of future costs will not be reliable.

Product or service differentiation involves: A. Any changes made to a product or service B. Creating something that is perceived as unique and worth a premium price C. Shifting sales to growing markets D. The use of new technologies in manufacturing

Response Feedback: Product or service differentiation involves offering something that the competition does not offer and for which the customer is willing to pay a premium. It may be related to customer service, technological leadership, or even market image.