Cost Accounting Exam #1 MC (Conceptual)

Which of the following is an example that critics of absorption costing may use to show its potential for leading to undesirable incentives for managers? a: Plant managers may defer maintenance beyond the current period to free up more time for production b: Plant managers may switch production to those orders that absorb the highest amount of fixed manufacturing overhead, irrespective of the demand by customers c: Plant managers may accept a particular order to increase production even though another plant in the same company is better suited to handle that order d: all of the above

D: all of the above

The scenario that says resources should be spent if the expected benefits to the company exceed the expected costs describes______ a: cost-benefit approach b: balanced scorecard c: behavioral and technical considerations d: different costs for different purposes

a: cost-benefit approach

Sustainability is a strategy to achieve long term: a: financial, social, and environmental goals b: financial and quality goals c: innovation and technology goals d: cost reductions and efficiency objectives

a: financial, social, and environmental goals

One of the first steps to take when using CVP (Cost-Volume-Profit) analysis to help make decisions is______________ a: identifying the variable and fixed costs b: calculation of the degree of operating leverage for the company c: estimating the volume of sales to make a good profit d: calculating the breakeven point

a: identifying the variable and fixed costs

Which of the following is not one of the reasons why absorption costing might also be used for internal reporting? a: it is more for managerial decision making than variable costing b: for long-term decision making both variable and fixed costs must be considered for inventory related decisions c: it is cost effective and less confusing for managers to use one common method for both internal and external reporting d: it can help prevent managers from making decisions that make their performance look good to the detriment of income reported to shareholders

a: it is more for managerial decision making than variable costing

Which of the following measures capacity levels in terms of demand for the output of the plant? a: normal capacity utilization and master-budget capacity utilization b: practical capacity and theoretical capacity c: master-budget capacity utilization and practical capacity d: theoretical capacity and normal capacity utilization

a: normal capacity utilization and master-budget capacity utilization

In the merchandising sector ________________ a: only variable costs are subtracted to determine gross margin b: all operating costs are subtracted to determine contribution margin c: fixed overhead costs are subtracted to determine contribution margin d: fixed overhead costs are subtracted to determine gross margin

a: only variable costs are subtracted to determine gross margin

When unsure of demand for your product when first starting your business, and given your understanding of operating leverage on profits, your cost structure preference should be higher________ a: variable costs relative to fixed costs b: fixed costs relative to uncertain opportunity cost c: sunk costs relative to relevant costs d: mixed costs relative to fixed cost

a: variable costs relative to fixed costs

Bennet Company employs 20 individuals. Eighteen employees are paid $18 per hour and the rest are salaried employees paid $3,000 a month. Which of the following is the total cost function of personnel? a: y = a + bX b: y = b c: y = bX d: y = a

a: y = a + bX

Many companies have switched from absorption costing to variable costing for internal reporting________ a: to increase bonuses for managers b: so the denominator level is more accurate c: to reduce the undesirable incentive to build up inventories that would show higher operating income d: to comply with external reporting requirements as required by GAAP

c: to reduce the undesirable incentive to build up inventories that would show higher operating income

Which of the following is not true about the cause-and-effect criterion when estimating a cost function? a: Contractual arrangements may show a direct cause and effect between two variables b: Managers must be careful not to equate high correlation between two variables to meant that either variable causes the other c: Knowledge of operations can help managers discover cause-and-effect relationships d: Correlation of variables proves cause-and-effect

d: Correlation of variables proves cause-and-effect

Which of the following statements about the cost-benefit approach is true? a: Resources should be spent if the costs of a decision outweigh the benefits of the decision b: Resources should be spent if the expected costs exceed the expected benefits of the company c: A cost-benefit approach would not be appropriate for a decision to install a budgeting system d: In a cost-benefit analysis, both costs and benefits are not easy to measure

d: In a cost-benefit analysis, both costs and benefits are not easy to measure

Which of the following statements about the direct/indirect cost classification is true? a: The design of sales target affects the direct/indirect classification b: indirect costs are always allocated c: The direct/indirect classification depends on the cost control measures d: Indirect costs are always traced

b: Indirect costs are always allocated

Describe the downward demand spiral and its implication for pricing decisions a: The downward demand spiral is the continuing inability for a company to meet the demand for its products that occurs when competitors offer the same products; as demand drop further, higher and higher unit costs result from spreading budgeted fixed manufacturing costs to less volume of units b: The downward demand spiral is the continuing reduction in demand for a company's products that occurs when the prices of competitors' products are not met; as demand drops further, higher and higher unit costs result in more and more reluctance to meet competitors' prices c: The downward demand spiral is a reduction in the production of a company's products. It is less likely to occur when managers use reported unit cost in a mechanical way to set prices. They are more likely to promote a downward demand spiral when they use practical capacity utilization or master-budget capacity utilization d: The downward demand spiral for a company is the continuing increase in the demand for its products that occurs when competitor prices are lowered; as demand increase, lower and lower unit costs result in greater ability to surpass competitors prices

b: The downward demand spiral is the continuing reduction in demand for a company's products that occurs when the prices of competitors' products are not met; as demand drops further, higher and higher unit costs result in more and more reluctance to meet competitors' prices

______________ method includes fixed manufacturing overhead costs as inventoriabale costs a: variable costing b: absorption costing c: throughput costing d: activity-based costing

b: absorption costing

Cost Assignment__________ a: is the same as cost accumulation b: associates accumulated costs with certain cost objects c: includes future and arbitrary costs d: is the difference between budgeted and actual costs

b: associates accumulated costs with certain cost objects

Which of the following statements is true of choosing cost drivers under activity-based costing? a: all the cost drivers should be unit-level cost drivers b: cost drivers are independent variables c: there should be a clear cause-and-effect relationship between cost drivers and cost pools d: a single cost driver should be identified for all the activities

b: cost drivers are independent variables

Total manufacturing costs equal______ a: direct manufacturing labor costs + sunk costs b: direct materials + conversion costs c: direct materials + prime costs d: direct manufacturing labor costs + conversion costs

b: direct materials + conversion costs

In a company with low operating leverage, _________ a: contribution margin and operating income are inversely related b: less risk is assumed than in a highly leveraged firm c: there is a higher possibility of net loss than a higher-leveraged firm d: fixed cost are more than the contribution margin

b: less risk is assumed than in a highly leveraged firm

Which of the following cost is included in cost of goods sold? a: distribution cost b: manufacturing labor cost c: marketing cost d: customer service cost

b: manufacturing labor cost

An experience curve_________ a: is a narrower application of the learning curve b: measures the decline in cost per unit as production decreases for various value-chain functions such as marketing as production increases c: measure the increase in cost per unit as productivity increases d: only measures the decline in labor-hours per unit as units produced increases

b: measures the decline in cost per unit as production decreases for various value-chain functions such as marketing as production increases

Which cost estimation method uses time-and-motion studies to reveal that to make a high quality men's suit jacket, it takes 3 hours of direct labor effort per jacket and 5 minutes of a salaried manager to perform quality control? a: the accrual accounting method b: the industrial engineering method c: the cash accounting method d: the high-low method

b: the industrial engineering method

Classifying a cost as either direct or indirect depends upon________ a: whether the cost is expensed in the period in which it is incurred b: whether the cost can be traced to a particular cost object in an economically feasible way c: whether the cost is fixed or variable d: the behavior of the cost in response to volume changes

b: whether the cost can be traced to a particular cost object in an economically feasible way

What are two ways of reducing the negative aspects associated with using absorption costing to evaluate the performance of a plant manager? a: 1- Focus on careful budgeting and inventory planning to reduce management's freedom to build up excess inventory 2- Increasing incentives for managers who increase operating income over a specific period of time b: 1- reduce the time period used to evaluate performance. by evaluating performance over a shorter time period, the incentive to max quarterly or annual income at the potential expense of long run income is lessened 2- Adopt an inventory holding charger for managers who tie up funds in inventory c: 1- Include nonfinancial as well as financial variables in the measures used to evaluate performance 2- Extend the time period used to evaluate performance. By evaluating performance over a longer time period (3-5yrs), the incentive to take short run actions that reduce long term income is lessened d: 1- Adopt either variable or throughput costing, both of which reduce the incentives of managers to produce for inventory 2- Focus the bonus plan for management based on absorption costing operating income

c: 1- Include nonfinancial as well as financial variables in the measures used to evaluate performance 2- Extend the time period used to evaluate performance. By evaluating performance over a longer time period (3-5yrs), the incentive to take short run actions that reduce long term inom eis lessened

Which of the following statements is true? Managers can lower the operating risk by________ a: Increasing the selling price and reducing volume b: Changing variable costs to fixed costs in the long-term c: Changing fixed costs to variable costs in the long-term d: Reducing the selling price and increasing volume

c: Changing fixed costs to variable costs in the long-term

Which of the following statements is true of a linear cost function? a: It presents total cost as an intercept b: It presents total cost as a slope coefficient c: It presents variable cost as a slope coefficient d: It presents variable cost as an intercept

c: It presents variable cost as a slope coefficient

The high-low method______ a: measure the difference between actual cost and estimated cost for each observation of the cost driver b: measures how well the predicted values, y, based on the cost driver, X, match actual cost observations, Y c: calculates the slope coefficient using only two observed values within the relevant range and their respective costs d: calculates the standard deviation of residuals

c: calculates the slope coefficient using only two observed values within the relevant range and their respective costs

The best metric for detecting inventory games is a time series of a: inventory / total assets b: inventory / cost of goods sold c: day's sales in inventory d: gross profit margin

c: day's sales in inventory

What is a plausible explanation of a cost function that has a slope coefficient of $30 for purchases of 1 to 1,000 units, and $25 for production of 1,100 - 2,000 units, and $20 for production of 2,001 - 3,000 units a: contribution margins are decreasing b: their is a linear cost function in effect c: economies of scale allowing for lower cost purchases with larger orders d: the fixed cost per unit has decreased because of efficiencies

c: economies of scale allowing for lower cost purchases with larger orders

Which one of the following is a variable cost for an insurance company? a: rent of the building b: CEO's salary c: electricity expenses d: property taxes

c: electricity expenses

In the estimation of a cost function using quantitative analysis, the independent variable________ a: is the product of total costs and slope coefficient b: is the product of fixed costs and slope coefficient c: is the factor used to predict the dependent variable d: is the cost to be predicted

c: is the factor used to predict the dependent variable

Which of the following is true of variable costing? a: it includes fixed manufacturing overhead as an inventoriable cost b: it expenses administrative costs as cost of goods sold c: it treats direct manufacturing costs as a product cost d: it is required for external reporting to shareholders

c: it treats direct manufacturing costs as a product cost

Which of the following is an example of nonlinear cost function? a: variable-cost functions b: mixed cost functions c: learning curves d: fixed-cost functions

c: learning curves

Goodness-of-fit measures how well the predicted values in a cost estimating equation________ a: determine the level of activity b: match the cost driver c: match the actual cost observations d: rely on the independent variable

c: match the actual cost observations

Under variable costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in____________ a: decreasing the manager's bonus b: increasing the manager's bonus c: not affecting the manager's bonus d: being unable to determine the manager's bonus using the above information

c: not affecting the manager's bonus

Ways to 'produce for inventory' that result in increasing operating income include_______ a: undervaluing ending inventory by not recording certain costs that have been incurred b: delaying items that absorb the greatest amount of fixed manufacturing costs c: switching production to products that absorb the most amounts of fixed manufacturing costs d: switching production to products that absorb the least amounts of fixed manufacturing costs

c: switching productions to products that absorb the most amounts of fixed manufacturing costs

Which of the following is a step to overcome problems related to data collection for estimating cost function? a: the analyst should not use accrual accounting b: the analyst should consider fixed costs variable c: the analyst should remove the inflationary effects d: the analyst should also use extreme values while calculating the cost functions

c: the analyst should remove the inflationary effects

Which of the following is a step followed by an analyst to overcome problems related to data collection for estimating cost function? a: to consider fixed costs as variable costs and treat allocated fixed cost per unit as a variable cost b: to use cash accounting c: to eliminate unusual observations if extreme values of observations occur d: to include the inflationary price effects in the data

c: to eliminate the unusual observations if extreme values of observations occur

Which of the following might explain why one manager might assign certain costs to a cost object while a different manager might assign some different costs to that same object? a: For F/S purposes, one manager might include all the costs of the value chain while the other might only include GAAP b: One manager might classify one cost as direct while another might classify that same cost as indirect c: One manager might value an inventory item for the B/S as the sum of all the value chain costs while another manager might choose to only recognize variable costs as inventoriabale costs for GAAP purposes d: One manager might be pricing a cost object while the other manager might be seeking the inventoriabale cost

d: One manager might be pricing a cost object while the other manager might be seeking the inventoriabale cost

What denominator-level capacity concepts emphasize the output a plant can supply? What denominator-level capacity concepts emphasize the output customers demand for products produced by a plant? a: Supply - normal & master-budget; Output - theoretical & practical b: Supply - normal & practical; Output - theoretical & master-budget c: Supply - theoretical & master-budget; Output - normal & practical d: Supply - theoretical & practical; Output - normal & master budget

d: Supply - theoretical & practical; Output - normal & master-budget

The __________ function supports the six functions of value-chain analysis a: planning b: controlling c: direction d:administration

d: administration

Switching production to products that absorb the highest amount of fixed manufacturing costs is also called________ a: cost reduction b: producing for sales c: throughput costing d: cherry picking

d: cherry picking

Advocates of throughput costing argue that _________ a: direct manufacturing labor is relatively fixed and therefore should not be included in inventory costs b: fixed manufacturing costs must be included as inventoriable costs and provide less incentive than absorption costing to build-up inventory to increase profit c: direct materials costs are a cost of the period and therefore should not be included in inventoriable costs d: including only direct materials as inventoriable costs provide less incentive than absorption costing to produce a build-up of inventory merely to increase profits

d: including only direct materials as inventoriable costs provide less incentive than absorption costing to produce a build-up of inventory merely to increase profits

Variable costs____________ a: are never considered a part of prime cost b: are always indirect costs c: include most personnel costs and depreciation on machinery d: increase in total when the actual level of activity increases

d: increase in total when the actual level of activity increases

Which of the following is a manufacturing overhead cost? a: labor cost of plant workers that can be traced accurately and easily to a particular product b: cost of materials that can be traced to individual products in an economically feasible way c: the use of direct materials in the making of a finished good d: overtime premiums paid to plant workers

d: overtime premiums paid to plant workers

Using_____________as the denominator level also gives the manager a more accurate idea of the resources needed and used to produce a unit by excluding the cos of unused capacity a: theoretical capacity b: master-budget capacity utilization c: normal capacity utilization d: practical capacity

d: practical capacity

Which cost estimation method would involve analyzing direct labor subsidiary accounts and classifying costs as variable, fixed, or mixed to derive cost estimation formulas? a: the marginal costing method b: the incremental costing method c: the conference method d: the account analysis method

d: the account analysis method

Direct materials inventory costs would normally include________ a: the cost of products in their original form intended to be sold without changing their basic form b: the cost of goods fully completed but not yet sold c: the cost of goods partially worked on but not yet fully completed d: the cost of materials in stock are part of the cost object (product) and can be traced to that cost object in an economically feasible way

d: the cost of materials in stock are part of the cost object (product) and can be traced to that cost object in an economically feasible way