BUAD 281 Final Conceptual Questions

Which of the following occurs if a company experiences an increase in its fixed costs? -the B/E point increases -net income would increase -the CM would increase --CM would decrease -more than one of these answers would occur

-B/E point increases

a standard cost is:

A budget for the production of one unit of a product or service.

Which of the following best defines the concept of a relevant cost? Multiple Choice A past cost that is the same among alternatives. A past cost that differs among alternatives. A future cost that is the same among alternatives. A future cost that differs among alternatives. A cost that is based on past experience.

A future cost that differs among alternatives.

Sales Margin Equation

BT operating income/sales revenue

COGS equation

Beginning FG inventory + COGM - Ending FG inventory

conversion cost equation

Direct Labor + Manufacturing Overhead

Prime Cost Equation

Direct Materials + Direct Labor

T/F: A predetermined overhead rate is calculated by dividing actual overhead cost by the actual amount of a cost driver used in the process.

FALSE

T/F: As an organization grows, however, its managers need less formal information systems, including managerial accounting information, in order to maintain control.

FALSE

T/F: One benefit of residual income is that it can be used to compare the performance of different-sized investment centers.

FALSE

T/F: Total contribution margin is defined as total sales revenue plus total variable expenses.

FALSE

T/F: Significant departures investigated, when using management by exception, are uniform across all size and types of organizations with varying production processes.

FALSE

T/F: Managerial accountants use either task analysis or an analysis of historical data to set cost standards

FALSE - i think they would use both????

T/F: A division's return on investment may be improved by increasing sales margin and cost of capital.

FALSE - improving SM and CT

T/F: A favorable labor efficiency variance is created when actual labor hours worked exceed standard hours allowed.

FALSE - this would be an unfavorable variance

T/F: When spending is lower than expected for direct materials, the amount by which spending is less than planned is called an unfavorable direct-material variance (U).

FALSE - this would be favorable not unfavorable

T/F: Variances are computed by taking the difference between the product cost and standard cost.

FALSE - variances computed by taking the difference between the actual cost and standard cost

Consider the following costs and decision-making situations: I. The cost of existing inventory, in a keep vs. disposal decision. II. The cost of special electrical wiring, in an equipment acquisition decision. III. The salary of a supervisor who will be transferred elsewhere in the organization, in a department-closure decision. Which of the above costs is (are) relevant to the decision situation noted?

II ONLY

The City of San Diego is about to replace an old fire truck with a new vehicle in an effort to save maintenance and other operating costs. Which of the following items, all related to the transaction, would not be considered in the decision? Multiple Choice Purchase price of the new vehicle. Purchase price of the old vehicle. Savings in operating costs as a result of the new vehicle. Proceeds from disposal of the old vehicle. All of these answer choices would be considered in the decision.

Purchase price of the old vehicle.

Capital Turnover Formula

Sales revenue / av. invested capital

T/F: Manufacturing overhead is a pool of indirect production costs that must somehow be attached to each unit manufactured.

TRUE

T/F: On the CVP graph, the break-even point is determined by the intersection of the total-revenue line and the total-expense line.

TRUE

T/F: ROI, residual income, and EVA are computed for a period of time.

TRUE

T/F: Residual income facilitates goal congruence while ROI does not.

TRUE

T/F: The biggest challenge in making a decentralized organization function effectively is to obtain goal congruence among the organization's autonomous managers.

TRUE

T/F: The break-even point is that level of activity where total revenue equals total cost.

TRUE

T/F: The contribution margin ratio can also be expressed as a percentage.

TRUE

T/F: The contribution-margin ratio is calculated as unit contribution margin divided by the selling price per unit.

TRUE

T/F: The relevant range is the range of activity in which management of a company expects to operate.

TRUE

T/F: Improving ROI is a balancing act that requires all the skills of an effective manager.

TRUE

T/F: Interactions among variances often occur, making it even more difficult to determine the responsibility for a particular variance.

TRUE

T/F: Most companies close their variance accounts directly into Cost of Goods Sold.

TRUE

T/F: Normal defect rates in an assembly process would be considered if a company desires to establish a series of practical manufacturing standards.

TRUE

As production takes place, all manufacturing costs are added to the:

WIP inventory account

Variances are computed by taking the difference between which of the following?: -Product cost and period cost. -Actual cost and differential cost. -Price factors and rate factors. -Actual cost and standard cost. -Product cost and standard cost

actual cost and standard cost

A favorable labor rate variance is created when: -actual labor hours worked exceed standard hours allowed. -actual hours worked are less than standard hours allowed. -actual wages paid are less than amounts that should have been paid for the number of hours worked. -actual units produced exceed budgeted production levels. actual units produced exceed standard hours allowed.

actual wages paid are less than amounts that should have been paid for the number of hours worked.

which of the following is a period cost? -direct material -advertising expense -indirect labor -miscellaneous supplies used in production activities -factory foreman salary for the motor production line

advertising expense

Which of the following can influence a company's pricing decisions? Multiple Choice Manufacturing costs. Competitors. Customer demand. Pricing laws. All of the answers are correct.

all answers are correct

CVP analysis can be used to study the effect of: -changes in selling prices on a company's profitability -changes in variables prices on a company's profitability -changes in fixed costs on a company's profitability -changes in product sales mix on a company's profitability -all of the answers are correct

all of the answers are correct

Which of the following underlying assumptions form(s) the basis for cost-volume-profit analysis? -Revenues and costs behave in a linear manner -Costs can be categorized as variable, fixed, or semivariable -Worker efficiency and productivity remain constant. -In multiproduct organizations, the sales mix remains constant. -all of the answers are correct

all of the answers are correct

1. Behavioral scientists find that perfection standards often discourage employees and result in low worker morale. 2. Practical standards are also known as attainable standards. 3. Practical standards incorporate a certain amount of inefficiency such as that caused by an occasional machine breakdown. Which of the above statements is (are) true?

all three of them are true

Product costing in a manufacturing firm is the process of: -accumulating the company's period costs -allocating costs among the firm's departments -placing a value on the company's fixed assets -assigning costs to the firm's inventory -assigning costs to the company's managers

assigning costs to the firm's inventory

The curve that shows the relationship between the sales price and quantity sold is called the: Multiple Choice marginal revenue curve. average cost curve. profit curve. demand curve. total revenue curve.

demand curve

When using normal costing, the total production cost of a job is composed of:

direct material, direct labor, and applied MOH

manufacturing cost equation

direct materials used + direct labor + MOH

which of the following costs is not a component of MOH? -indirect materials -factory utilities -factory equipment -indirect labor -property taxes on the manufacturing plant

factory equipment

T/F: The concept of a relevant cost can be defined as a past cost that differs among alternatives.

false

t/f: Dubin Company has excess capacity and wants to add a new service to its expanding business. The new service should be added as long as service revenues exceed the sum of variable costs and fixed costs.

false

t/f: Opportunity cost is not important in special order decisions.

false

If the volume sold reacts strongly to changes in price, demand: Multiple Choice has no elasticity. has negative elasticity. is inelastic. is elastic. is unrealistic.

is elastic

The curve that shows the change in total revenue that accompanies a change in quantity sold is called the: Multiple Choice marginal revenue curve. average cost curve. profit curve. demand curve. revenue curve.

marginal revenue curve

Which of the following variances are most similar with respect to the manner in which they are calculated? Multiple Choice -Labor rate variance and labor efficiency variance. -Material price variance and material quantity variance. -Material price variance, material quantity variance, and total material variance. -Material price variance and labor efficiency variance. -Material quantity variance and labor efficiency variance.

material quantity variance and labor efficiency variance

Which of the following inventories would a discount retailer report as an asset? -raw materials -WIP -Finished goods -merchandise inventory -all of the answers are correct

merchandise inventory

The biggest challenge in making a decentralized organization function effectively is: Multiple Choice 1. earning maximum profits through fair practices 2. minimizing losses 3. taking advantage of the specialized knowledge and skills of highly talented managers 4. obtaining goal congruence among division managers 5. developing an adequate budgetary control system.

obtaining goal congruence among division managers

The extent to which an organization uses fixed costs in its cost structure is measured by:

operating leverage

How would a 5% sales commission paid to sales personnel be classified in a manufacturing company?

period cost, variable

Costs that are expensed when incurred are called? A. Product costs B. Direct costs C. Inventoriable costs D. Period costs E. Indirect costs

period costs

Research and development costs are classified as:

period costs

What do service companies use cost information for?

planning and control purposes

As activity decreases, unit variable cost

remains constant

Which of the following would NOT be classified as a product cost? -Direct materials -direct labor -indirect materials -insurance on a manufacturing plant -sales bonuses for meeting quotas

sales bonuses for meeting quotas

ROI equations

sales margin * capital turnover also: target profit = target ROI * av. invested capital BT Operating income/av. invested capital

The following costs are relevant to the decision situation cited except: Multiple Choice 1. the cost of hiring a full-time staff attorney, in a decision to establish an in-house legal department or retain the services of a prominent law firm. 2. the remodeling cost of existing office space, in a firm's decision to stay at its current location or move to a new building. 3. the long-term salary costs demanded by Joe Torrez (a superstar) and Rip Moran (an average player) in baseball contract negotiations, in a decision that determines the amounts by which ticket prices must be raised. 4. the cost to enhance an airline's beverage service, in a decision to expand existing airline service to either Salt Lake City or Phoenix. 5. the commissions that could be earned by a salesperson, in a decision that involves salesperson compensation methods (i.e., commissions or flat monthly salaries).

the cost to enhance an airline's beverage service, in a decision to expand existing airline service to either Salt Lake City or Phoenix.

contribution-margin ratio equation

the unit contribution margin divided by the selling price per unit

The curve that shows the relationship between the total sales revenue and quantity sold is called the: Multiple Choice marginal revenue curve. average cost curve. profit curve. demand curve. total revenue curve.

total revenue curve

The break-even point is that level of activity where:

total revenue equals total cost

t/f: The City of Columbus should not consider the purchase price of its old vehicle when making the decision to replace it with a more cost effective new vehicle.

true

t/f: The process of identifying relevant costs and benefits is largely the same whether the decision is viewed from a short-run or long-run perspective.

true

t/f: The term "opportunity cost" is best defined as the benefit associated with a rejected alternative when making a choice.

true