Accy 200: Exam 2 Study Guide

The relevant range concept refers to:

A firm's range of activity

Most entities satisfy the accounting criteria for recognizing revenue when:

A product or service is provided

In the t-account cost flow diagram of balance sheet inventory accounts and the income statement cost of goods sold account:

Goods manufactured is debited to finished goods inventory

An income statement organized by cost behavior does not include:

Gross profit

Which of the following terms do not appear on the contribution margin format income statement:

Gross profit

The scattergram allows cost-volume relationships to be visually scanned for outlier observations that should be:

Ignored in the calculation of the cost formula of a mixed cost

The term non controllable cost:

Implies that there is really nothing the manager can do to influence the amount of cost

If they are useful to managers, variances should be reported:

In terms of dollar amounts as promptly as feasible

When a firm's activity requires it to operate at a level above the upper boundary of the relevant range, fixed expenses are likely to:

Increase

Which of the following will increase a company's break-even point?

Increasing variable cost per unit

The method of evaluating financial data that change under different courses of action is called:

Incremental analysis

The key to analyzing a sell as is or process further decision is to determine that:

Incremental revenues exceed incremental costs

Which of the following is part of working capital?

Merchandise inventory

Assume that Kulpa Company has a current ratio of 0.7. Which of the following transactions would increase this ratio?

Purchasing merchandise inventory on credit

____ is a technique used to filter cost information contained in performance reports to each manager within the organization at an appropriate level of detail or summarization:

Responsibility reporting

Working capital includes all of the following accounts except:

Retained earnings

Another term for return on investment is:

Return on assets

Which of the following is a universally accepted measure of profitability?

Return on investment

An individual interested in making a judgement about the profitability of a company should:

Review the trend of the company's ROI for several years

The operating expense budget is based on the:

Sales budget

Contribution margin can be expressed as:

Sales minus variable expenses

The key data element on which the entire budget is based is the:

Sales/revenue forecast

Which of the following is another term for mixed costs?

Semi-variable costs

Asset turnover calculations:

Should be evaluated by observing the turnover trend over a period of time

A budget that has been prepared only once prior to the budget period is called a:

Single-period budget

Income from operations is:

Sometimes used in the ROI calculation

A management decision that would have a long term influence on the operation would be:

Substituting robots for hourly paid production workers

Which of the following cost classifications would not be considered relevant in comparing decision alternatives?

Sunk cost

An entity's current ratio will be influenced by:

The inventory cost flow assumption used

The major difference between the indirect and direct method of a statement of cash flows appears in which of the following activities section(s)?

The operating activities section only

Product costs are inventoried and treated as assets until:

The period in which the products they relate to are sold

Managerial accounting can be best described as:

The preparation and use of accounting information within the organization

Managerial accounting can best be described as:

The preparation and use of accounting information within the organization

The term transfer price refers to:

The price at which a product or service is sold by one segment to another related segment

In the statement of cash flows, depreciation and amortization expense is added back to net income because:

These expenses do not affect cash, but were subtracted in the determination of net income

The part of the variable overhead budget variance due to the difference between actual HOURS required and standard HOURS allowed for work done is called the:

Variable overhead EFFICIENCY variance

The part of the variable overhead budget variance due to the difference between actual variable overhead COST and the standard COST allowed for the actual inputs used is called the:

Variable overhead SPENDING variance

If an asset costs $32,000, has an expected useful life of 10 years, is expected to have a $4,000 salvage value, and generates net annual cash inflows of $8,000 a year, the cash payback period is:

4 years

Most entities satisfy the accounting criteria for recognizing an expense when:

A costs incurred in the revenue generating process

Which of the following is a true statement regarding absorption and/or direct costing?

Absorption costing includes fixed overhead in product costs whereas direct costing does not

Management's use of resources can best be evaluated by focusing on measures of:

Activity

In order to achieve higher quality cost information from the assignment of overhead costs to products manufactured, the use of a predetermined overhead rate is being replaced by:

Activity-based costing

The use of activity-based costing information to support the decision making process is known as:

Activity-based management

A favorable materials quantity variance would occur if:

Actual pounds of materials used were LESS than the standard pounds allowed

How is performance evaluated for a profit center?

Actual segment margin compared to budgeted segment margin

An example of a cost likely to have a fixed behavior pattern is:

Advertising cost

Because of their importance to financial statement users, certain items are not normally ported as separate items on the income statement (especially when significant in amount). Which of the following is not normally reported as a separate item?

Advertising expense

Which of the following costs would be classified as a period cost?

Advertising expense for the product

The concept of matching revenue and expense refers to the fact that:

All costs incurred in the process of earning revenues during a period are recorded as expenses in that period

Which of the following is an accurate statement regarding a statement of cash flows?

All material operating, investing, and financing activities are included

To be most effective, performance reports should be:

All of the above

A sunk cost is a cost that:

All of these

Cost accounting is primarily concerned with:

All of these

The difference between standard and actual cost per unit of input is measured by:

All of these

The term "cost" means:

All of these

Each of a company's two product lines has a different contribution margin ratio. If the company's total sales remain the same but the mix shifts toward selling more of the product with the higher contribution ratio, which of the following is true?

All of these are true

If the net variance of a business using standard costing is significant relevant to total production cost, the net variance should be:

Allocated between WIP and FG inventories and cost of goods sold

ROI can be described or computed in each of the following ways except:

Amount Invested/Amount of Return = ROI

The overhead component of product cost is:

An estimated amount, based on labor hours, machine hours, or some other activity

An excess of cost of goods manufactured over the cost of goods sold for the period represents:

An increase in finished goods inventory

Which of the following would not decrease working capital?

An increase in merchandise inventory

The purchasing agent of an organization acquired some raw materials at a bargain price, even though she knew that their quality was lower than that of the materials customarily used. This action resulted in a favorable raw materials purchase price variance that might very well have been more than an offset by:

An unfavorable raw materials usage variance

Costs may be allocated to a product or activity for many purposes, but care must be exercised when using allocated costs because:

Arbitrarily allocated costs may not behave in the way assumed in the allocation method

Common costs pertain to costs that:

Are NOT directly traceable to a cost object

Relevant costs in decision-making:

Are future costs that represent differences between decision alternatives

Gains differ from revenues because gains:

Are not a result of the entity's ongoing, central operation

Direct cost pertain to costs that:

Are traceable to a cost object

Financial leverage:

Arises because most borrowed funds have a fixed interest rate

A predetermined overhead rate is used to:

Assign indirect costs to cost object

A standard cost or production standard that is achievable under actual operating conditions is called a(n):

Attainable standard

Many financial analysts substitute one amount for another in making ratio analysis comparisons in order to better achieve inter-company or company-to-industry data comparability. Which of the substitutions described below would not achieve better data comparability (for the ratio indicated) under any situation?

Average net assets for the average total assests in the denominator of the return on investment ratio

In a make or buy decision, which of the following costs would be considered relevant?

Avoidable costs

A set of integrated financial and operating performance measures that communicate an organization's priorities associated with achieving strategic goals is known as a:

Balanced scorecard

For performance reports to be most effective for management by exception, they should:

Be issued as soon after the activity or period covered as possible

In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:

Be subtracted from net income because this means that revenues were more than cash collected

Cost of goods manufactured can be computed as:

Beginning balance of work in process + raw materials USED + direct labor law costs incurred + manufacturing overhead costs applied - ending balance of work in process

A performance report for direct labor shows a variance between the budget and actual amounts. The difference is:

Budget variance

The total variance for any particular cost component is referred to as the:

Budget variance

Which of the following is NOT a strong reason for budgeting?

Budgeting requires little effort by non-accounting managers

If the trend of the current ratio is increasing, while the trend of the acid-test ratio is decreasing over a period of time, this could be a warning that the firm is:

Carrying excess inventories

Which of the following transactions would not be shown under the operating activities category of the statement of cash flows (using the direct method)?

Cash paid to purchase land

A cost that is incurred because of a long-range policy decision is known as a:

Committed cost

Fixed costs classified according to the time frame perspective are known as:

Committed cost and discretionary cost

How is performance evaluated for an investment center?

Comparison of actual and budgeted ROI based on segment margin and assets controlled by the segment

Which of the following items would NOT be reported on the statement of cost of goods manufactured?

Contribution margin

Which of the following is the correct calculation for the contribution margin ratio?

Contribution margin divided by sales revenue

The decision for solving production mix problems involving multiple products and scarce production resources should focus on:

Contribution margin per unit of scarce resource

Performance analysis in the planning and control cycle relates to the act of:

Controlling

When the low-high method of estimating a cost behavior pattern is used:

Cost and volume data must be reviewed for outliers

The contribution margin format income statement is organized by:

Cost behavior classifications

An activity-based costing system involved in identifying the activity that causes the incurrence of a cost; this activity is known as a:

Cost driver

Which of the following is not an inventory account for a manufacturing company?

Cost of goods sold

When the periodic inventory system is used:

Costs of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases

Cost behavior refers to:

Costs that are variable or fixed

Which of the following is/are an example of a measure of leverage?

Debt/equity ratio

In considering whether or accept a special order at a price less than the normal selling price of the product and where the additional sales will make use of the present idle capacity, which of the following costs will not be relevant?

Depreciation of the manufacturing plant

The comparison of activity measures of different companies is complicated by the fact that:

Different inventory cost flow assumptions may be used

___ costs between two alternative projects are those that would result from selecting one alternative instead of the other:

Differential

The preferred format for a segmented income statement emphasizes:

Direct and common fixed costs

The three components of product costs are:

Direct material, direct labor, manufacturing overhead

Earnings per share calculations are required on the income statement for:

Discontinued operations, extraordinary items, and net income

Another term for the price/earnings ratio is:

Earnings multiple

An example of a cost likely to have a mixed behavior pattern is:

Electricity cost for the manufacturing plant

Managerial accounting, as opposed to financial accounting, is primarily concerned with:

Emphasizing the future

The redetermined overhead application rate based on direct labor hours is computed as:

Estimated total overhead costs divided by estimated direct labor hours

A variance is the difference between actual costs and:

Expected costs

A vertical common size income statement:

Expresses all items within any given year's income statement as a percentage of net sales for that given year

In a standard cost system, which of the following statements is true?

Favorable variances are not always good variances

If the actual number of labor hours used exceeds standard labor hours allowed for the actual number of units produced but actual labor cost is less than standard labor cost, the labor rate and efficiency variances are:

Favorable, Unfavorable

At the break-even point:

Fixed cost is always equal to the contribution margin

Expressing fixed costs on a per unit basis of activity is misleading because:

Fixed cost per unit decrease as activity increases

As the level of activity decreases:

Fixed cost remains constant in total

The primary difference between absorption costing and direct costing is the treatment of:

Fixed manufacturing overhead

When analyzing end of period production cost variances, which of the following product cost components will need "flexing"?

Fixed manufacturing overhead

If the actual level of activity is different from the budgeted level, a ___ budget is prepared for the actual level of activity:

Flexible

A budget adjusted to reflect a budget allowance based on actual activity rather than the original budget is a:

Flexible budget

Opportunity costs are:

Foregone benefits

Which of the following accounts/captions are not ever included in the calculation for Gross Profit?

General and selling expenses

The principle objective of a performance report is to:

Highlight activities that need management attention

Revenue may be recognized:

If a company trades inventory at its usual selling price for newspaper advertising

For control purposes, the variance should be isolated when:

Material is purchased

A capital budgeting technique that considers the time value of money is the:

Internal rate of return

Direct costing may be used for:

Internal reporting purposes

The price/earnings ratio:

Is a measure of the relative expensiveness of a firm's common stock

The inventory turnover calculation:

Is an alternative way of expressing the number of days' sales in the inventory

Book value per share of a common stock of a manufacturing corporation:

Is not a very useful measure most of the time

The gross profit ratio is useful to the manager for each of the following purposes EXCEPT:

It can be used to estimate the amount of operating expenses for a period

An advantage of the DuPont model for calculating ROI is that:

It focuses on asset utilization as well as net income

A cost is considered relevant if:

It makes a difference

Chuck's investment proposal would have to be inferior to Edna's proposal if it was expected to have a:

Longer payback period

Which of the following statements does NOT describe a characteristic of management accounting

Management accounting must conform to GAAP

Cost accounting is a subset of:

Managerial accounting

If the discount rate used to evaluate a capital budgeting project is equal to the project's internal rate of return, the project's:

NET present value is zero

Return on investment (ROI) is computed as:

Net income divided by average total assets

The first caption in most income statements in annual reports is:

Net sales

Another term for return on equity is:

None of these

When an income statement shows data for segments of the organization, and data for each segment are added together to get totals for the whole organization:

Only direct revenues and direct expenses should be assigned to segments

The concept of operating leverage refers to which of the following?

Operating income changes proportionately MORE than REVENUES for any given change in activity level

___ standards allow inefficiencies from prior years to be incorporated into the budget, thus providing little incentive for improvement:

Past experience

The best reason for flexing a budget is to:

Permit a more accurate determination of variances

To which function of management is CVP analysis most applicable?

Planning

Activities included in a generally accepted definition of the management process include:

Planning, organizing, controlling

A potential creditor's judgement about granting credit would be most influenced by the potential customer's:

Practice with respect to taking cash discounts offered by current suppliers

Which of the following variances is NOT determined during an overhead variance analysis?

Price variance

Which of the following costs are included in the "for cost accounting purposes" classification?

Product cost and period cost

An example of a cost that is likely to have a direct relationship with products being manufactured is:

Production labor costs

An example of a cost that is likely to have a variable behavior pattern is:

Production labor wages

An example of a product cost is:

Production line maintenance costs

An example of a cost that is non controllable in the short run is:

Property taxes

The cost of capital used in the capital budgeting process is primarily a function of:

ROI

If management wanted to increase the financial leverage of the firm, it would:

Raise additional capital by selling fixed interest rate long-term bonds

For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is:

Raises the current ratio

The three sections of a statement of cost of goods manufactured include:

Raw material, direct labor, manufacturing overhead

Which of the following is NOT an account that over/under applied overhead is transferred to at the end of an accounting period?

Raw materials

Which of the following describes the correct sequence of a flow of costs for a manufacturing firm?

Raw materials, work-in-process, finished goods, cost of goods sold

Return on equity:

Relates net income and stockholders' equity

When comparing entity financial ratios with industry ratios:

Relative values at a point in time may not be significant

The type of costs included in a management analysis relating to a capital budgeting decision should be limited to:

Relevant costs

Simplifying assumptions made when using cost behavior pattern data include:

Relevant range and linearity

Which of the following is NOT a category of financial statement ratios?

Reliability

Cost-volume-profit analysis assumes fixed costs:

Remain constant as activity changes

When a cost formula is used to describe a mixed (semi-variable) cost behavior pattern, total costs are expected to increase and per unit costs are expected to:

Remain constant as the level of activity increases

The contribution margin income statement:

Reports expenses based upon cost behavior pattern rather than cost function

Standards are most appropriately used to:

Support the planning and control processes of the firm

A(n) _______ is the minimum cost that can be incurred, which when subtracted from the selling price, allows for a desired profit to be earned:

Target cost

Which of the following factors favor the buy option in the make or buy decision?

Technical expertise of supplier

Recognition of revenue in accrual accounting requires:

That the revenue be realized or realizable, and earned

If the net present value of a proposed investment is positive:

The cost of capital is lower than the internal rate of return

Knowledge about the behavior pattern of a cost is important to understanding the effect on net income of a change in sales volume because as sales volume changes:

The effect on net income will depend on the behavior pattern of various costs

The term, "earned", in revenue recognition refers to which of the following?

The entity has competed, or substantially completed, the activities it must perform to be entitled to the revenue benefits

The term, "realization," in revenue recognition refers to which of the following?

The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash

The dividend payout ratio describes:

The proportion of earnings paid as dividends

The term "relevant range" refers to:

The range of activity where cost relationships are valid

In most circumstances, in order to recognize revenue:

The revenue must be realizable and earned

If a firm borrowed money on a six-month bank loan, the firm's working capital immediately after obtaining the loan. relative to its working capital prior to the loan, would be:

The same

An organizer's value chain refers to:

The sequence of functions and related activities that add value for the customer

The key difference between a controllable cost and a non controllable cost is:

The short term ability to influence the cost by the manager

A higher price/earnings ratio means that:

The stock is relatively expensive

As the total volume of activity changes:

The total of variable cost changes

The sequence of activities that add value to the organization are:

The value chain

ABU Co. has several products, each with a different contribution margin ratio. If the same number of units were sold in July as in June, but the sales mix changed:

Total contribution in July would be different from that in June

If the net of all variances is immaterial relative to the total production costs incurred during the period, the net variance is:

Treated as an adjustment to cost of goods sold

Which of the following costs are not relevant in a decision to continue or discontinue a segment of the organization:

Unavoidable costs

Which of the following will cause income determined to be higher than income determined with direct costing?

Units produced are greater than units sold

The return on investment measure of performance is:

Used by individuals to compare investment performance

The contribution margin format income statement:

Uses a behavior pattern classification for costs rather than a functional cost classification approach

Managerial accounting, as compared to financial accounting:

Uses frequent and prompt control reports

The difference between the fixed manufacturing overhead budgeted for the period and the fixed manufacturing overhead applied to the production for the period is called:

Volume variance

The fixed manufacturing overhead variance caused by actual activity being different from the estimated activity used in calculating the predetermined overhead application rate is called the:

Volume variance

Financial statement ratios support informed judgements and decision making most effectively:

When the trend of entity data is compared to the trend of industry data

Which of the following is NOT usually considered a measure of an entity's liquidity?

Working Capital