ACCOUNTING FINAL STUDY GUIDE
In the balanced scorecard, the learning and growth perspective addresses which of the following questions?
"To achieve our mission, how will we sustain our ability to change and improve?"
Pasqua Corporation budgeted manufacturing overhead to be $1,400,000 in the coming year. The company uses direct labor hours to allocate overhead to Work-in-Process. The estimated hours for the year total 70,000 direct labor hours. If 72,000 direct labor hours were actually worked during the period, how much overhead was allocated to the Work-in-Process inventory?
$1,440,000 Predetermined overhead rate = Estimated overhead of $1,400,000 ÷ Estimated allocation base of 70,000 direct labor hours = $20 per direct labor hour. The amount of overhead allocated to Work-in-Process = The actual direct labor hours worked of 72,000 × The predetermined overhead rate of $20 per direct labor hour = $1,440,000.
Halo Beverages has two divisions, North and South, which share the common costs of the company's computer support. The total cost of computer support is $4,000,000 a year. The North Division fields 3,800 help desk calls per year and uses 18,200 hours of network time. The South Division fields 4,200 desk help calls per year and uses 21,800 hours of network time. What is the amount of cost that will be allocated to the North Division if fixed computer support costs of $2,500,000 are allocated on the basis of number of calls and the remaining costs (all variable) are allocated on the basis of number of hours on the network? $2,100,000
$1,870,000 Fixed computer support costs of $2,500,000 ÷ 8,000 (or 3,800 + 4,200) total help desk calls = Fixed cost of $312.50 per help desk call. Variable computer support costs = Total cost of computer support of $4,000,000 - Fixed computer support costs of $2,500,000 = $1,500,000. Variable computer support costs of $1,500,000 ÷ 40,000 (or 18,200 + 21,800) hours of network time = Variable cost of $37.50 per hour of network time. Cost allocated to North Division = Fixed costs of $1,187,500 (or 3,800 help desk calls × of $312.50 per help desk call) + Variable costs of $682,500 (or 18,200 hours of network time × $37.50 per hour) = $1,870,000. References eBook & Resources
Cuddly Toys makes a large teddy bear that currently sells for $62 per bear. At a production level of 20,000 bears per year, the bears have a total unit cost of $50 per bear. The total unit cost is comprised of variable costs of $45 per bear and fixed costs of $5 per bear (or total fixed costs of $100,000 ÷ 20,000 bears). Cuddly Toys has excess capacity to manufacture 15,000 more bears. The company has been approached by a new customer, who wants to buy 5,000 large bears for $47 apiece. What is the effect on operating profit if the special order is accepted?
$10,000 increase to operating profit The fixed manufacturing overhead costs are allocated to units, most likely to value inventory for external financial reporting and tax purposes. Included in the resulting $50 unit cost is a variable manufacturing cost of $45 per unit. It is important to note that $100,000 per year fixed cost would not be affected by the decision to accept the special order. As such, operating profit would be affected as follows. Revenue from the special order of $235,000 (or 5,000 × $47) - Variable costs of making the special order of $225,000 (or 5,000 × $45) = $10,000 increase in operating profit.
Jordan Inc. manufactures water polo balls, which sell for $50. The company expects to incur the following costs during the coming year: variable manufacturing cost, $15 per unit; variable selling and administrative cost, $5 per unit; fixed manufacturing cost, $35,000; and fixed selling and administrative cost, $25,000. What is the break-even volume in sales dollars?
$100,000 Break-even volume in sales dollars = Fixed costs ÷ Contribution margin ratio (must be calculated). Contribution margin ratio = Unit contribution margin of $30 (or selling price of $50 - Variable manufacturing cost of $15 per unit - Variable selling and administrative cost of $5 per unit) ÷ Selling price of $50 = 60%. Break-even volume in units = Fixed costs of $60,000 (or Fixed manufacturing cost of $35,000 + Fixed selling and administrative cost of $25,000) ÷ Contribution margin ratio of 60% = $100,000.
Slider processes rebate requests for a large building supply firm. Slider processed 420,000 rebates in March. All rebates are processed the same day they are received. March costs were labor of $28,000 and overhead of $14,000. What is the cost to process 1,000 rebates?
$100.00. ($28,000 + $14,000)/420,000 = $0.10/rebate × 1,000 rebates = $100
Products X, Y, and Z are produced from the same process at a cost of $13,920. Five thousand pounds of raw material yields 3,200 X, 4,200 Y, and 2,700 Z. Selling prices are: X $2 per unit, Y $4 per unit, Z valueless. The ending inventory of X is 84 units. What is the value of the ending inventory if joint costs are allocated using net realizable value?
$100.80. [(3,200 × $2)/($6,400 + $16,800)] × $13,920 = $3,840; ($3,840/3,200) × 84 = $100.80
The Nicto Company incurred the following costs to produce 5,000 chairs in February: direct materials, $20,000; direct labor, $30,000; and manufacturing overhead, $25,000. What was the cost assigned to each chair produced?
$15.00 Unit costs are calculated by dividing total costs by the number of units produced. In this case, the Total cost to manufacture 5,000 chairs was $75,000 (or Direct materials of $20,000 + Direct labor of $30,000 + Manufacturing overhead of $25,000). Therefore, the cost per chair was $75,000 ÷ 5,000 = $15 per chair. References eBook & Resources
The Evangeline Company makes two products, X and Y, from a common input, Z. In March, Evangeline used 30,000 pounds of Z to make 20,000 pounds of X and 10,000 pounds of Y. The cost of Z was $1.00 per pound and X and Y can be sold for $7.50 and $10.00, respectively; Evangeline incurred additional processing costs of $30,000 to further process X and $20,000 to further process Y. Using the net realizable value method, how much of the cost of Z should be allocated to X?
$18,000 Recall that the net realizable value method allocates joint costs to products based on their net realizable values at the split-off point. The net realizable value is the estimated sales value of each product at the split-off point. If the joint products can be sold at the split-off point, the market value or sales price should be used for this allocation. The net realizable values are as follows: X = $120,000 (or (20,000 pounds × $7.50 per pound) − Further processing costs of $30,000); Y = $80,000 (or (10,000 pounds × $10.00 per pound) - Further processing costs of $20,000); Total of the net realizable values = $200,000 (or $120,000 + $80,000). The cost of Z that should be allocated to X = (Net realizable value of X of $120,000 ÷ Total net realizable values of $200,000) × Additional processing costs of $30,000 = $18,000 References eBook & Resources
The Schuler Insurance Company processed 60,000 claims in March. It takes an average of 6 hours to process each claim. The company incurred $240,000 of labor and $840,000 of overhead costs during March. What was the cost to process each claim?
$18.00 Total costs incurred = Labor of $240,000 + Overhead of $840,000 = $1,080,000. The cost to process each claim = $1,080,000 ÷ 60,000 claims = $18.00 per claim.
Sipco, Inc., a wholesaler, purchased $175,000 of inventory during the year, incurred transportation-in costs of $21,000, and shipping costs of $14,000. The company had $10,000 of inventory on hand at the beginning of the year and $7,000 on hand at the end of the year. What is the cost of goods for the year?
$199,000 Cost of goods sold = Beginning inventory + Cost of goods purchased (must be calculated) less Ending inventory. The cost of goods purchased = Merchandise cost of $175,000 + Transportation-in costs of $21,000 = $196,000. The cost of goods sold = Beginning inventory of $10,000 + Cost of goods purchased of $196,000 - Ending inventory of $7,000 = $199,000. References eBook & Resources
Soapy's Suds makes and sells root beer. Its beginning Work-in-Process Inventory was $12,000 and the ending Work-in-Process Inventory was $10,000. During the year, Soapy used $45,000 of direct materials and incurred $30,000 of direct labor in production. Its cost of goods manufactured for the period was $97,000. How much manufacturing overhead did Soapy incur during the period?
$20,000 Cost of goods manufactured of $97,000 = Beginning Work-in-Process Inventory of $12,000 + Total manufacturing costs incurred (must be calculated) - Ending Work-in-Process Inventory of $10,000; as such, total manufacturing costs incurred = $95,000. Total manufacturing costs incurred of $95,000 = Direct materials used of $45,000 + Direct labor of $30,000 + Manufacturing overhead costs incurred; solving for manufacturing overhead costs incurred: $95,000 - $45,000 - $30,000 = $20,000
The Evangeline Company makes two products, X and Y, from a common input, Z. In March, Evangeline used 30,000 pounds of Z to make 20,000 pounds of X and 10,000 pounds of Y. The cost of Z was $1.00 per pound and X and Y can be sold for $7.50 and $10.00, respectively; Evangeline incurred additional processing costs of $30,000 to further process X and $20,000 to further process Y. Using the physical quantities method, how much of the cost of Z should be allocated to X?
$20,000 Recall that the physical quantities method assigns joint costs to products based on a physical measure. The percentage of Z represented by X = Total output of X of 20,000 pounds ÷ Total input of 30,000 pounds = 2/3. The cost of Z that should be allocated to X = Cost of Z of $30,000 × Percentage of Z represented by X of 2/3 = $20,000.
James Company had the following costs at a production level of 30,000 units of product: direct materials, $45,000; direct labor, $60,000; variable manufacturing overhead, $15,000 and fixed manufacturing overhead, $30,000. If the same cost pattern persists, what would be the total cost of production at a level of 50,000 units?
$230,000 Recall that variable costs are costs that change in direct proportion with a change in volume within the relevant range of activity while fixed costs are costs that are unchanged as volume changes within the relevant range of activity. Total variable costs = Direct materials of $45,000 + Direct labor of $60,000 + Variable manufacturing overhead of $15,000 = $120,000. The variable cost per unit = $120,000 ÷ 30,000 units = $4 per unit. The total cost of production at a level of 50,000 units = Variable cost of $200,000 (or 50,000 × $4 per unit) + Fixed costs (comprised of fixed manufacturing overhead) of $30,000 = $230,000.
Ridgeway Corporation uses direct labor hours to allocate overhead to Work-in-Process. The company's budgeted overhead is $420,000 and it expects to produce 40,000 vases this period. It takes 2 direct labor hours to produce one vase. If 60,000 direct labor hours are actually worked during the period, how much overhead should be allocated to the Work-in-Process inventory?
$315,000 Predetermined overhead rate = Estimated overhead ÷ Estimated allocation base. In this instance, the amount of estimated direct labor hours needed to produce 40,000 vases = 80,000 (or 40,000 units × 2 direct labor hours per unit). The predetermined rate = Estimated overhead of $420,000 ÷ Estimated direct labor hours of 80,000 = $5.25 per direct labor hour. The amount of overhead allocated to work in process = Actual direct labor hours of 60,000 × $5.25 per direct labor hour = $315,000.
Solanki Corporation had a beginning inventory in Work-in-Process of $42,000. During the current year, the company incurred the following manufacturing costs: direct materials, $120,000; direct labor, $140,000; and overhead, $100,000. The company's ending Work-in-Process inventory was $27,000. What is the cost transferred to the finished goods inventory?
$375,000 The basic cost flow model is Beginning balance + Transfers in - Transfers out = Ending balance. As such, Beginning balance of $42,000 + Transfers in $360,000 (or Direct materials of $120,000 + Direct labor of $140,000 + Manufacturing overhead of $100,000) - Transfers out = Ending balance of $27,000; solving for the transfers out: $42,000 + $360,000 - $27,000 = $375,000.
Kilwin Candy Company employs 6 workers, each working 8-hour days. Each worker has the capacity to make 200 candy bars per day. The average pay of these workers is $8.00 per hour. On Wednesday, the workers only made 1,080 candy bars. The cost driver rate for this activity was calculated to be $0.32 per bar. The cost of unused capacity on Wednesday was:
$38.40 The cost of unused capacity is calculated by multiplying the cost driver rate by the difference between capacity and the actual results. Cost of unused capacity = Cost driver rate of $0.32 × Unused capacity of 120 (capacity of 1,200 (or 6 workers × 200 candy bars per day) - Actual results of 1,080 candy bars) = $38.40. References eBook & Resources
Refresh produces soft drinks and sodas. Production of 120,000 liters was started in February, 105,000 liters were completed. Material costs were $52,420 for the month while conversion costs were $36,380. There was no beginning work-in-process; the ending work-in-process was 40% complete. What is the cost of the product that remains in work-in-process?
$4,800. Equivalent production = 105,000 + [40% × (120,000 - 105,000)] = 111,000 units. Cost per unit = ($52,420 + $36,380)/111,000 = $0.80; costs in ending WIP = [40% × (120,000 - 105,000)] × $0.80 = $4,800
Abbott Company incurred the following costs during the year: utilities (60% factory), $5,000; insurance (75% factory), $4,000; direct materials, $20,000; indirect materials, $3,000; direct labor, $30,000; and indirect labor, $5,000. What is the amount of conversion costs incurred during the year?
$44,000 Conversion costs = Direct labor + Manufacturing overhead (must be calculated). Manufacturing overhead = Factory utilities of $3,000 (or $5,000 × 60%) + Factory insurance of $3,000 (or $4,000 × 75%) + Indirect materials of $3,000 + Indirect labor of $5,000 = $14,000. Conversion costs incurred = Direct labor of $30,000 + Manufacturing overhead of $14,000 = $44,000.
In 2016, the Allen Company had consulting revenues of $1,175,000 while operating costs were $820,000. In 2017, Allen will be introducing a new service that will generate $164,000 in sales revenues and $67,000 in operating costs. Assuming no changes are expected for the other services, the differential operating costs for 2017 will be
$67,000.
Bent Tree incurred the following unit costs during the year: variable manufacturing cost, $27; fixed manufacturing cost, $10; variable marketing and administrative cost, $8; and fixed marketing and administrative cost, $6. During the year, Bent Tree produced 30,000 units and sold 25,000 units of product. The selling price was $67 per unit. What was Bent Tree's total gross margin?
$750,000 Gross margin = Revenue - Cost of goods sold as reported on the income statement. On a per unit basis, Cost of goods sold = Variable manufacturing cost of $27 + Fixed manufacturing cost of $10 = $37 per unit. Then, on a per unit basis, Gross margin = Selling price of $67 - Cost of goods sold of $37 per unit = $30 per unit. The total gross margin = 25,000 × $30 per unit = $750,000.
Aspen Corporation has two divisions, East and West. Its corporate office is separate from these divisions and incurred $190,000 in administrative costs during the year. These costs are allocated to the divisions based on their individual revenues. During the year, the East and West divisions had revenues of $1,800,000 and $2,200,000, respectively. How much of the administrative cost should be assigned to the East division based on the cost allocation rule described?
$85,500 Total revenues = $1,800,000 + $2,200,000 = $4,000,000. The percentage of revenues earned by the East division = $1,800,000 ÷ $4,000,000 = 45%. As such, the administrative cost that should be assigned to the East division = Total administrative costs of $190,000 × The percentage of revenue earned by the East division of 45% = $85,500.
A retailer called Little Big Brother sells video games. The games sell for $40 each. The variable costs consist of the purchase price of $20 per video game. The store's annual fixed costs are $250,000 and the company's income tax rate is 40%. What is the volume of sales dollars required to earn an after-tax target profit of $120,000?
$900,000 Target volume of sales dollars = [Fixed costs + (Target profit ÷ (1 - Tax rate))] ÷ Unit contribution ratio (must be calculated). Contribution margin ratio = (Selling price of $40 - Total variable costs per unit of $20) ÷ Selling price of $40 per unit = 50%. After-tax target volume of sales dollars = [Fixed costs of $250,000 + Before-tax target profit of $200,000 (or After-tax target profit of $120,000 ÷ (1 - Tax rate of 40%))] ÷ Contribution margin ratio of 50% = $900,000.
Summit Manufacturing had $10,000 of direct materials on hand at the beginning of the year and $9,000 on hand at the end of the year. During the year, the company purchased $42,000 of direct materials, and incurred $22,000 of direct labor and $17,000 of manufacturing overhead. The company had $26,000 of inventory in Work-in-Process Inventory at the beginning of the year and $12,000 at the end of the year. What is the cost of goods manufactured for the year?
$96,000 Cost of goods manufactured = Beginning Work-in-Process Inventory + Total manufacturing costs incurred (must be calculated) - Ending Work-in-Process Inventory. Total manufacturing costs incurred = Direct materials used (must be calculated) + Direct labor + Manufacturing overhead. The direct materials used during the year = Beginning direct materials inventory of $10,000 + Purchases of $42,000 - Ending direct materials inventory of $9,000 = $43,000. Total manufacturing costs incurred = Direct materials used of $43,000 + Direct labor of $22,000 + Manufacturing overhead of $17,000 = $82,000. Cost of goods manufactured = Beginning Work-in-Process Inventory of $26,000 + Total manufacturing costs incurred of $82,000 - Ending Work-in-Process Inventory of $12,000 = $96,000.
Summit Company manufactures and sells three products; X, Y, and Z. Last year sales of these products were 20,000 units of X, 30,000 units of Y and 50,000 units of Z. The unit contribution margins are $5 for X, $4 for Y, and $3 for Z. Assuming the product mix remains the same and that fixed costs are $222,000, how many units of X must Summit sell to break even?
12,000 Break-even volume in units = Fixed costs ÷ Weighted-average unit contribution margin (must be calculated). The three products sell in a fixed product mix ratio of 20,000:30,000:50,000 or 2:3:5. A package is defined as two units of X + three units of Y + five units of Z. The weighted-average unit contribution margin of a package = (Unit contribution margin × The product mix ratio for product X) + (Unit contribution margin × The product mix ratio for product Y) + (Unit contribution margin × The product mix ratio for product Z) = ($5 × 2) + ($4 × 3) + ($3 × 5) = $37 per package. Break-even number of packages = Fixed costs of $222,000 ÷ Weighted-average unit contribution margin of $37 = 6,000 packages. Since there 2 units of X per package, 12,000 (or 6,000 × 2) units of X must be sold to break even.
McNally Corporation makes a special ski. Next year, McNally expects to produce 20,000 pairs of skis. Seven pounds of fiberglass are required to make each pair of skis. The company expects to have 21,000 pounds of fiberglass in inventory at the end of this year and next year wants to have an ending inventory of fiberglass of 18,000 pounds. How much fiberglass does the company expect to purchase next year?
137,000 pounds Required materials purchases = Materials to be used in production of 140,000 pounds (or 20,000 pairs of skis × 7 pounds per pair) + Estimated ending materials inventory of 18,000 pounds - Estimated beginning inventory of 21,000 pounds = 137,000 pounds.
Hale & Hearty Inc. currently sells 10,000 treadmills for $520 each. Variable costs relating to this product are $320 per unit and fixed costs total $1,200,000. What is the company's margin of safety?
4,000 units Margin of safety = Sales volume - Break-even volume in units (must be calculated). Break-even volume in units = Fixed costs of $1,200,000 ÷ Unit contribution margin of $200 (or Selling price of $520 - Variable cost per unit of $320) = 6,000 units. Margin of safety = Sales volume of 10,000 units - Break-even volume in units of 6,000 units = 4,000 units.
Direct labor cost is used to allocate manufacturing overhead to Work-in-Process. The budgeted overhead is $600,000 and the company expects to use 5,000 direct labor hours to make 20,000 units of product. If the average wage rate is $20 per hour, what is the predetermined rate used to allocate overhead to Work-in-Process?
600% Predetermined overhead rate = Estimated overhead ÷ Estimated allocation base. Predetermined overhead rate = Estimated overhead of $600,000 ÷ Estimated direct labor cost of $100,000 (or 5,000 Direct labor hours × $20 per hour) = 6.0, which means that $6 of overhead will be allocated for each $1 of direct labor. That rate can then be stated as 600% (or $6 ÷ $1).
Key West Inc. manufactures inflatable kayaks. Each kayak sells for $350. At a production level of 10,000 units, the total variable manufacturing cost is $1,200,000 and the fixed manufacturing cost in total is $420,000. At this level of activity, the company will incur variable selling and administrative costs of $900,000 and fixed selling and administrative costs of $770,000. How many units have to be sold to break even?
8,500 Break-even volume in units = Fixed costs (must be calculated) ÷ Unit contribution margin (must be calculated). Total fixed costs = Fixed manufacturing cost of $420,000 + Fixed selling and administrative costs of $770,000 = $1,190,000. Unit contribution margin = Selling price - Total variable costs per unit (must be calculated). Variable cost per unit = Variable costs of $2,100,000 (or the total variable manufacturing cost of $1,200,000 + Variable selling and administrative costs of $900,000) ÷ Production level of 10,000 units = $210 per unit. Unit contribution margin = Selling price of $350 - Total variable costs per unit of $210 = $140 per unit. Break-even volume in units = Fixed costs of $1,190,000 ÷ Unit contribution margin of $140 = 8,500 units.
Which of the following statements regarding business strategies of organizations is not correct?
A cost leader has a high-volume production of a differentiated product, which is identical or nearly identical to their competitors' products.
f the total materials variance for a given operation is favorable, why must this variance be further evaluated as to price and usage?
A further evaluation lets management evaluate the activities of the purchasing and production functions.
Which of the following statements regarding internal controls to protect assets and provide quality information is not correct?
A highly effective system of internal controls will prevent and/or detect every error or irregularity.
Which of the following statements regarding costs and expenses is not correct?
Accounting systems typically capture and record both outlay costs and opportunity costs.
Which of the following statements regarding the differences between activity-based costing and traditional department product costing methods is not correct?
Activity-based costing requires less record keeping.
Which of the following statements regarding budgets is not correct?
All of these are correct statements.
What term is used to describe a set of performance targets and results that show how well an organization performed in meeting its objectives relating to its stakeholders?
Balanced scorecard
Which of the following was reported by the Treadway Commission as an example of pressures that can lead to financial fraud?
Bonus plans that depend on short-term economic performance
Which of the following terms is used to describe outputs of joint production processes that are relatively minor in quantity or value when compared to the main products?
By-products
Which of the following statements regarding the management of the cost of quality is not correct?
Conformance to specification (that is producing a product that is 100% within specification), meets both the external and internal views of quality.
Bent Tree incurred the following unit costs during the year: variable manufacturing cost, $27; fixed manufacturing cost, $10; variable marketing and administrative cost, $8; and fixed marketing and administrative cost, $6. During the year, Bent Tree produced 30,000 units and sold 25,000 units of product. The selling price was $67 per unit. What was Bent Tree's total contribution margin?
Contribution margin per unit = Revenue - Variable costs. On a per unit basis, Total variable costs = Variable manufacturing cost of $27 + Variable marketing and administrative cost of $8 = $35 per unit. Then, on a per unit basis, Contribution margin = Selling price of $67 - Variable cost per unit of $35 per unit = $32 per unit. The total contribution margin = 25,000 units × $32 per unit = $800,000.
Which is of the following statements regarding cost accounting information is not correct?
Cost accounting information is governed by generally accepted accounting principles (GAAP) in the United States and international financial reporting standards (IFRS) in many other countries.
Which of the following statements regarding customer profitability is not correct?
Customers affect company's profitability by their buying behavior. Customers affect a company's profitability by their effect on our costs. Information on customer profitability is important for managers, so they can make decisions that will improve firm performance. Some customers take longer to complete transactions; the additional time those customers take adds cost to the company.
What is the term used to describe a process that attempts to recover a fixed amount of costs with fewer and fewer units?
Death spiral
____________ is the delegation of decision-making authority to lower management levels within the organization.
Decentralization
Which of the following is not an overarching ethical principle of the IMA Statement of Ethical Professional Practice?
Discipline
Which of the following terms is used to describe a cost allocation system that separates a common cost into fixed and variable components and then allocates each component using a different allocation base?
Dual rate allocation system
Which of the following is an information technology that links the various processes of an enterprise into a single comprehensive system?
Enterprise resource planning
Cost driver rate
Expected activity cost of ÷ Expected cost driver volume.
One disadvantage of using nonfinancial measures to evaluate performance is that they are only available on a monthly, quarterly, or annual basis.
False
The break-even point for an organization with a low operating leverage will be relatively higher than the break-even point for an organization with a high operating leverage.
False
Assume that you are a cost accountant who is a member of the Institute of Management Accountants (IMA). If you are faced with an ethical conflict, what should you do?
Follow the established policies that deal with them and, if the policies do not resolve the conflict, you should consider discussing the matter with superiors.
Which of the following terms is used to describe an agreement by all members of a group on a common set of objectives?
Goal congruence
When overhead is applied based on the volume of output, which of the following product types would receive relatively more overhead?
High-volume, complex products
When activity-based costing is applied to administrative activities, a four-step process is used. The four steps, in random order, are: Identify the cost driver associated with each activity. Identify the activities that consume resources. Assign costs to the marketing or administration activity by multiplying the cost driver rate by the volume of cost driver units consumed for that activity. Compute a cost rate per cost driver for each unit or transaction. The correct order in which these steps should be taken is:
II, I, IV, III
Which of the following statements regarding the use of the reciprocal method of cost allocation is not correct?
If a service department is eliminated, the additional cost savings that may arise because of that department's demands on another service department cannot be estimated by the reciprocal method.
Which of the following statements regarding assumptions and limitations of CVP analysis is not correct?
If unit prices change (for example, if the unit prices are lower for higher volumes), CVP analysis cannot be used.
Which of the following terms is used to describe a cost center whose costs are charged to other departments in the organization?
Intermediate cost center.
Decentralized organizations can delegate authority and still maintain control and monitor managers' performance by designing appropriate management control systems. Which of the following responsibility centers would be evaluated similar to an independent business? (CMA, adapted)
Investment center.
If a company decides to increase its selling price by $4 per unit because of an increase in its variable labor cost of $4 per unit, what impact will these two changes have on the break-even volume in units?
It will not be impacted.
If a company produces or purchases units just in time for use, thereby keeping inventories at a minimum, which of the following methods is it using?
Just-in-time
Which of the following is not an advantage of decentralization?
Lower cost of monitoring and controlling the activities of local managers
Which of the following systems is designed to influence subordinates to act in the organization's interests?
Management control system
Which of the following statement(s) relating to CVP analysis with spreadsheets is (are) correct?
Once the data are entered, an analysis tool such as Goal Seek can be used to find the volume associated with a given desired profit level. A Microsoft Excel worksheet is ideally suited to doing CVP. An extremely simple Microsoft Excel spreadsheet can easily be edited to analyze alternative scenarios (also called "what-if" analyses
Which of the following statements is (are) false?(1). In general, the term expense is used for managerial purposes, while the term cost refers to external financial reports.(2). An opportunity cost is the benefit forgone by selecting one alternative over another.
Only (1) is false.
Which of the following terms is used to describe the study of how firms are structured and operated?
Organizational economics
Which of the following manufacturing costs are allocated to products indirectly using an allocation base?
Overhead
A company which manufactures custom-made machinery routinely incurs sizable telephone costs in the process of taking sales orders from customers. Which of the following is a proper classification of this cost?
Period cost
What type of accounting system would most likely be used when identical products are produced through uniform production steps?
Process costing
Which of the following is a value-added activity?
Product design, Production, Marketing, Customer service
Which of the following budgets is not required in a wholesale organization?
Production.
Which of the following terms is used to describe the method of comparing managers of one division to their peers?
Relative performance evaluation
Which of the following is an example of a nonvalue-added activity?
Reworking defective units
What is the term used to describe the measure of the variance in sales quantity, holding the sales mix constant?
Sales quantity variance
The Evangeline Company makes two products, X and Y, from a common input, Z. In March, Evangeline used 30,000 pounds of Z to make 20,000 pounds of X and 10,000 pounds of Y. The cost of Z was $1.00 per pound and X and Y can be sold for $7.50 and $10.00, respectively; Evangeline incurred additional processing costs of $30,000 to further process X and $20,000 to further process Y. If Evangeline could sell X for $6.25 per pound at the split-off point, should the company process X further or sell X at the split-off point and what is the difference in profit?
Sell at the split-off point, $5,000 Compare the net realizable value at split-off point with the sales value at split-off point. The net realizable value at split-off point = (20,000 pounds × $7.50 per pound) - Additional processing costs of $30,000 = $120,000. The sales value at the split-off point = 20,000 pounds × $6.25 per pound = $125,000. The sales value at the split-off point of $125,000 exceeds the net realizable value at split-off point of $120,000. As such, the company should sell X at the split-off point since $5,000 (or $125,000 − $120,000) of additional profit will result.
Which of the following terms is used to describe the stage of processing that separates two or more products?
Split-off point
Which of the following terms is used to describe an organizational subunit whose managers are held responsible for costs and in which the relationship between costs and output is well defined?
Standard cost center
The death spiral concept refers to the process of continually decreasing selling prices to meet foreign competition.
TRUE
What does the Sarbanes-Oxley Act of 2002 require the CEO and CFO to do?
Take responsibility for signing financial statements. Stipulate that the financial statements do not omit material information. Disclose that they have evaluated the company's internal controls. Disclose that they have notified the company's auditors and the audit committee of the board of any fraud that involves management.
Which of the following statements is not correct?
The cash budget must be prepared prior to the sales budget because managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period.
Which of the following is a principle underlying the design of cost management systems?
The costing system should be designed so that its benefits exceed its costs.
Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable labor efficiency variance?
The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid experienced individuals.
The plantwide cost allocation method should be used by companies that manufacture products that are similar and use the same resources. True
The plantwide cost allocation method should be used by companies that manufacture products that are similar and use the same resources. True
What is the purpose of the management control system?
To align more closely the interests of the manager and the interests of the organization.
If the budgeted activity level is greater than the actual activity level, then the total budgeted costs of the master budget will be greater than the total budgeted costs of the flexible budget.
True
In a sell-or-process-further decision, the common costs incurred prior to the spilt-off point are irrelevant.
True
When assembling the master budget, the budgeted balance sheet is the last budget prepared in the process.
True
Volume-based costing allocates indirect product costs based on the volume of output, using such allocation bases as direct labor hours, machine hours, or the amount of direct material used in the production process. Activity-based costing (ABC) has consistently shown that Volume-based costing ___________ the cost of high volume products and ______________ the cost of low volume products.
Understates, Overstates
The difference between variable costs and fixed costs is (CMA adapted)
Unit variable costs are fixed over the relevant range and unit fixed costs are variable.
Direct labor would fall into what cost category?
Unit-level
Put the following activity analysis steps in order: Chart, from start to finish, the company's activities for completing the product. Compare the costs of each activity with the value that customers assign to it. Classify all activities as value-added or nonvalue-added. Develop activity-based costing data for each activity, based on the resources used in each activity. Identify what the customer wants or expects from the firm's products or services, including key features, price, and quality. Continuously improve the efficiency of all value-added activities and eliminate or reduce nonvalue-added activities.
V, I, IV, III, II, VI
Which of the following describes the set of activities that transforms raw resources into the goods and services end users (households, for example) purchase and consume and also includes the treatment or disposal of any waste generated by the end users?
Value chain
Which of the following statements regarding time-drive activity-based costing (TDABC) is not correct?
With TDABC, the manager only needs to determine the time it takes to complete the various activities of the department and the cost of the resources supplied to a department. The cost driver rate for the various activities equals the time available divided by the cost of the resources supplied.
The main difference between an activity-based costing system and a two-stage costing system is that, in the first-stage allocation, an activity-based costing system:
assigns costs directly to activities.
The most fundamental variance analysis compares:
budgeted operating income with actual operating income.
The individual who would most likely use only financial accounting information in making decisions is a
company stockholder.
A cost of quality system is likely to underestimate:
external failure costs.
Liability claims are an example of:
external failure costs.
The industry volume variance is the portion of the sales activity variance due to a change in the company's proportion of sales in the markets in which they operate.
false
Operating leverage refers to the extent to which an organization's cost structure is made up of:
fixed costs.
After-tax target profit equals the before-tax operating profit:
multiplied by (1 - tax rate).
A company has high winter demand and low summer demand for its services. The cost of the unused summer capacity should be allocated:
only to the winter customers.
Multiplying the cost driver rate by the cost driver volume measures the _________ for an activity.
resources used
Total factor productivity:is a ratio of the value of output to the value of all key inputs.
s a ratio of the value of output to the value of all key inputs.
The labor yield variance is actual total hours at:
standard mix times standard labor rates less standard total hours at standard mix times standard labor rates.