Cost Accounting Final
What are the factors that affect the breakeven point under (a) variable costing? 1. Fixed (manufacturing and operating) costs. 2. Contribution margin per unit. 3. Production level in units in excess of breakeven sales in units. 4. Denominator level chosen to set the fixed manufacturing cost rate.
1 and 2
Select three ways income taxes can affect the cash inflows or outflows in a motor-vehicle-replacement decision by a taxpaying company.
1. Additional depreciation deductions for the new vehicle result in tax cash savings. 2. Tax is payable on gain or loss on disposal of the existing motor vehicle. 3. Tax is payable on gain or loss on the sale of the new vehicle at the project termination date.
What are the steps in developing a budgeted variable overhead cost-allocation rate?
1. Choose the period to be used for the budget. 2. Select the cost-allocation bases to use in allocating variable overhead costs to the output produced. 3. Identify the variable overhead costs associated with each cost-allocation base. 4. Compute the rate per unit of each cost-allocation base used to allocate variable overhead costs to output produced.
What are the variances in a 4-variance analysis?
1. Fixed overhead spending variance 2. Variable overhead efficiency variance 3. Variable overhead spending variance 4. Production-volume variance
What are two ways of reducing the negative aspects associated with using absorption costing to evaluate the performance of a plant manager?
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 (say, 3 to 5 years), the incentive to take short-run actions that reduce long-term income is lessened.
Assume variable manufacturing overhead is allocated using machine-hours. Give three possible reasons for a favorable variable overhead efficiency variance.
1. Machine time standards were overly lenient. 2. Machines operated with fewer slowdowns than budgeted. 3. Workers more skillful in using machines than budgeted.
What are the factors that affect the spending variance for variable manufacturing overhead?
1. Price changes of individual inputs (such as energy and indirect materials) included in variable overhead relative to budgeted prices. 2. Percentage change in the actual quantity used of individual items included in variable overhead cost pool, relative to the percentage change in the quantity of the cost driver of the variable overhead cost pool.
Name the five steps, in order, in process costing when equivalent units are computed.
1. Summarize the flow of physical units of output. 2. Compute output in terms of equivalent units. 3. Summarize total costs to account for. 4. Compute cost per equivalent unit. 5. Assign total costs to units completed and to units in ending work in process.
Activity based costing system differs from traditional costing systems in the treatment of ________. A. indirect costs B. direct material costs C. prime costs D. direct labor costs
A
Activity−based costing (ABC) can eliminate cost distortions because ABC systems ________. A. establish a cause−and−effect relationship with the activities performed B. use a broad average to allocate all overhead costs C. never consider interactions between different departments in assigning support costs D. use single cost pool for all overhead costs, thereby enabling simplicity
A
In comparing the absorption and variable cost methods, each of the following statements is true except: A. When inventory increases over the period, variable net income will exceed absorption net income. B. SG&A fixed expenses are not included in inventory in either method. C. Only the absorption method may be used for external financial reporting. D. Variable costing charges fixed overhead costs to the period they are incurred.
A
The cost-plus pricing approach is generally in the form ________.
Cost base + Markup component = Prospective selling price
The three guidelines for refinement include: The three guidelines for refinement include: A. 1.Classify as many of the total costs as direct costs as is economically feasible. 2.Expand the number of indirect cost pools until each of these pools is more homogenous. 3.Use the cause-and-effect criterion, when possible, to identify the cost-allocation base for each indirect-cost pool. B. 1.Identify the products that are the chosen cost objects. 2.Identify the direct and indirect costs of the products. 3.Compute the total cost of the products by adding all direct and indirect costs assigned to the products. C. 1.Select the activities and cost-allocation bases to use for allocating indirect costs to the products. 2.Identify the indirect costs associated with each cost-allocation base. 3.Compute the rate per unit of each cost-allocation base. D. 1.Set cost reduction targets in terms of reducing the cost per unit of a cost-allocation base in different activity areas. 2.Perform an analysis of the factors that cause costs to be incurred (cost drivers) in order to identify opportunities for improving the way work is done. 3.Evaluate whether particular nonvalue-added activities can be reduced or eliminated.
A
What is a possible consequence of using broad averaging to calculate unit costs? A. By ignoring the variation in the consumption of resources by different cost objects, broad averaging can lead to inaccurate product costing. B. By ignoring the allocation of indirect costs to the cost objects, broad averaging can lead to product overcosting. C. Broad averaging does not take into account variable cost components, and therefore, this method is unable to provide meaningful data when estimating costs across various levels of activity. D. Broad averaging, which ignores actual average indirect cost rates, can lead to product overcosting or product undercosting.
A
Which of the following is not a benefit of decentralization? A. Creates competition among subunit managers. This is the correct answer. B. Creates greater responsiveness to the needs of customers and suppliers. C. Assists in development and learning. D. Sharpens the focus of subunit managers.
A
Which of the following items will be same for a flexible budget and a master budget? A. total expected fixed costs This is the correct answer. B. total contribution margin C. total variable cost D. total expected revenues
A
Which of the following reasons explain why ABC concepts may be of great value to service companies? A. A significant portion of the cost structure of a service firm is composed of indirect costs B. It allows for more accurate cost accounting for inventory C. It promotes more accurate cost of goods sold reporting D. It helps make financial reporting more accurate
A
Which of the following statements is true? A. ABC systems apply equally well to manufacturing, merchandising and service companies. B. ABC systems provide benefit to manufacturing companies only. Merchandising companies carry only merchandising (finished goods) inventory and service companies generally carry no inventory at all, and therefore, an ABC system would not apply to these companies. C. ABC systems apply equally well to manufacturing and merchandising companies, but not to service companies. Service companies generally carry no inventory, and therefore, an ABC system would provide little, if any, benefit. D. ABC systems apply equally well to manufacturing and retail-oriented merchandising companies, but not to distribution-oriented merchandising companies, which carry only finished goods inventory, or to service companies, which do not carry inventory.
A
Which f the following methods focuses on reducing costs during the manufacturing stage?
Cost-plus pricing
When is a company justified in inventorying scrap?
A company is justified in inventorying scrap when its estimated net realizable value is significant and the time between storing it and selling or reusing it is quite long.
Absorption Costing
A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.
Variable Costing
A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.
Describe the difference between a direct materials efficiency variance and a variable manufacturing overhead efficiency variance.
A direct materials efficiency variance indicates whether more or less direct materials were used than was budgeted for the actual output achieved. A variable manufacturing overhead efficiency variance indicates whether more or less of the chosen allocation base was used than was budgeted for the actual output achieved.
Select the major advantage of the FIFO method for purposes of planning and control.
A major advantage of FIFO is that managers can judge the performance in the current period independently from the performance in the preceding period.
What is a management control system?
A management control system is a means of gathering and using information to aid and coordinate the planning and control decisions throughout an organization and to guide the behavior of its managers and employees. The goal of the system is to improve the collective decisions within an organization.
What properties should a a transfer-pricing system should have? A.It should motivate management effort. B. It should be useful for evaluating subunit performance. C. It should promote goal congruence. D. It should preserve a high level of subunit autonomy in decision making. E. It should promote independent goal setting among divisions. F. It should preserve a high level of subunit dependence in decision making.
A, B, C, and D
"Costs of abnormal spoilage are losses." Explain.
Abnormal spoilage is spoilage that is not inherent in a particular production process and would not arise under efficient operating conditions. Costs of abnormal spoilage are "lost costs", measures of inefficiency that should be written off directly as losses for the accounting period.
What are the factors that affect the breakeven point under (b) absorption costing? 1. Fixed (manufacturing and operating) costs. 2. Contribution margin per unit. 3. Production level in units in excess of breakeven sales in units. 4. Denominator level chosen to set the fixed manufacturing cost rate
All of the factors affect the breakeven point.
What is life-cycle budgeting?
An estimate of the revenues and costs attributable to each product from its initial R&D to its final customer servicing and support.
What is cost-plus pricing?
Cost-plus pricing is a pricing approach in which managers add a markup to cost in order to determine price.
What is one key way to reduce cost-allocation disputes that arise with government contracts?
Areas of dispute between contracting parties can be reduced by making the "rules of the game" explicit and in writing at the time the contract is signed.
Each of the following statements is correct regarding overhead variances except: A. Actual overhead greater than applied overhead is unfavorable. B. The efficiency overhead variance ignores the standard variable overhead rate. C. Variable overhead rates are not a factor in the production-volume variance calculation. D. Favorable spending and efficiency variances imply that the flexible budget variance must be favorable.
B
Management accountants use the cots hierarchy to first calculate the A) labor costs of each product and then they compute material costs B) total costs of each product and then they compute per-unit costs C) overhead costs of each product and then they compute prime costs D) factory costs of each product and then they compute labor costs
B
What is broad averaging A. Broad averaging describes a costing approach that allocates indirect costs to cost objects based on the budgeted average indirect cost rates multiplied by the budgeted quantities of the cost-allocation bases. B. Broad averaging describes a costing approach that uses broad averages for assigning the cost of resources uniformly to cost objects. C. Broad averaging describes the method of calculating the average fixed manufacturing overhead cost of each unit produced or service performed. D. Broad averaging describes a costing system that uses direct costs to assign the cost of resources directly to cost objects.
B
Why should the accountant distinguish between transferred-in costs and additional direct material costs for each subsequent department in a process-costing system? (Select all that apply.) A. The direct materials are always added at the beginning of the department process. B. The control methods and responsibilities may be different for transferred-in items and materials added in the department. C. Department supervisors and line managers are most familiar with the transferred-in costs, so they most often estimate those costs. Controllers are most familiar with the direct materials costs, thus they estimate the direct materials costs. Thus, the distinction between the two costs are really important. D. All direct materials may not be added at the beginning of the department process. E. The control methods and responsibilities are always the same for transferred-in items and materials added in the department.
B and D
How do budgeted cost rates motivate the support-department manager to improve efficiency?
Budgeted cost rates motivate the manager of the support department to improve efficiency because the support department bears the risk of any unfavorable cost variances.
A master budget is ________. A. a budget which starts from a zero base B. developed at the end of a period C. based on the level of expected output at the start of the budget period D. a type of flexible budget once actual results are known
C
A variance is ________. A. the standard units of inputs for one output B. the difference between actual fixed cost per unit and standard variable cost per unit C. the difference between an actual result and a budgeted performance D. the difference between actual variable cost per unit and standard fixed cost per unit
C
Costing system refinement A. describes an event, task, or unit of work with a specified purpose. Consistent with its more strategic focus, costing system refinement identifies activities in all functions of the value chain. Costing system refinement first calculates the costs of individual activities and then assigns costs to cost objects such as products and services on the basis of the mix of activities needed to produce each product or service. B. is a process used to categorize various activity cost pools on the basis of the different types of cost drivers, or cost-allocation bases, or different degrees of difficulty in determining cause-and-effect (or benefits-received) relationships. C. means making changes to a simple costing system that reduces the use of broad averages for assigning the cost of resources to cost objects and provides better measurement of the costs of overhead resources used by different cost objects. D. describes a costing approach that uses broad averages for assigning the cost of resources uniformly to cost objects when the individual products or services, in fact, use those resources in non-uniform ways.
C
For a company with diverse products, undercosting overhead of a product will lead to productminus−cross minus−subsidization which means that: A direct costs of another product are misallocated B. Direct material costs of the product are misallocated C. indirect costs of another product are misallocated D. direct labor costs of the product are misallocated
C
It only makes sense to implement an ABC system when: A) production process is labor-intensive B) its benefits exceed implementation costs C) ABC traces more costs as direct costs D) A single product is produced in bull
C
The process by which a company's products or services are measured relative to the best possible levels of performance is known as ________. A. efficiency B. variance analysis C. benchmarking D. a standard costing system
C
What are the four levels of a cost hierarchy? A. 1. Direct costs 2. Indirect costs 3. Variable costs 4. Fixed costs B. 1. Design costs 2. Manufacturing costs 3. Distribution costs 4. Customer service costs C. 1. Output unit-level costs 2. Batch-level costs 3. Product-sustaining costs or service-sustaining costs 4. Facility-sustaining costs D. 1. Direct materials 2. Direct labor 3. Direct manufacturing overhead 4. Indirect manufacturing overhead
C
Which of the following statements is true? A. In a process-costing system, individual jobs use different quantities of production resources. B. In a job-costing system, overheads are allocated to all units equally. C. In a process-costing system, each unit uses approximately the same amount of resources. D. In a job-costing system, average production cost is calculated for all units produced.
C
Which of the following items describes a weakness of the internal rate-of-return method?
Cash flows from the investment are assumed in the IRR analysis to be reinvested at the internal rate of return.
Which of the following sentences is true of classification of spoilage as normal or abnormal when inventories are present?
Classifying spoilage as normal rather than abnormal results in an increase in current operating income.
IMA standards of ethics
Competence, confidentiality, integrity, and credibility
What are the three major influences on pricing decisions?
Customers, Competitors, and Costs
Efficiency is ________.. A. the degree to which a predetermined objective or target is met B. the continuous process of comparing a firm's performance levels against the best levels of performance in competing companies C. the difference between an actual input quantity and a budgeted input quantity D. the relative amount of inputs used to achieve a given output level
D
Fixed overhead costs include ________. A. energy costs B. the cost of sales commissions C. indirect materials D. leasing of machinery used in a factory
D
Select Manufacturing Co. produces three joint products and one organic waste byproduct. Assuming the byproduct can be sold to an outside party, what is the correct accounting treatment of the by-product proceeds received by the firm? A. Apply sale proceeds on a prorated basis to the joint products' sales. B. Apply the sale proceeds to the firm's miscellaneous income account. C. Use the sale proceeds to reduce the common costs in the joint production process. D. Either "b" or "c" can be used.
D
What is one potential limitation of full-cost-based transfer prices? A. The supplying division may not have sufficient incentives to control costs if the full-cost-based transfer price uses actual costs rather than standard costs. B. They can lead to suboptimal decisions for the company as a whole. C. Buying products or services outside the company when it is beneficial to overall company profitability to source them internally. D. All of the above are correct.
D
Which of the following are examples of industries that use process-costing systems? A. Oil refining B. Semiconductor Chips C. Pharmaceutical D. All of the above
D
Which of the following is a method for determining transfer prices? A. Negotiated transfer prices B. Cost-based transfer prices C. Market-based transfer prices D. All of the above
D
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
Why is the term direct costing a misnomer? A. Variable (direct) costing does not include all direct costs as inventoriable costs. Only variable direct manufacturing costs are included. Any fixed direct manufacturing costs, and any direct nonmanufacturing costs (either variable or fixed), are excluded from inventoriable costs. B. Variable (direct) costing includes as inventoriable costs not only direct manufacturing costs but also some indirect costs (variable indirect manufacturing costs). C. Variable (direct) costing considers both variable manufacturing and variable nonmanufacturing costs as period costs, which are expensed. D. Both a and b are correct.
D
Making design decisions is an example of managing costs:
During the planning phase; before they are incurred but are "locked in"
A flexible−budget variance pertaining to revenues is often called a sales−volume variance.
False
A favorable variance can be automatically interpreted as "good news."
False
A standard price is the minimum price a company will have to pay for a unit of input.
False
An unfavorable price variance for materials-handling labor indicates that the actual cost per materials-handling labor-hour is less than the budgeted cost per materials-handling labor-hour.
False
Counting spoiled units as part of output units in a process−costing system usually results in a higher cost per unit.
False
For revenue items, a favorable variance means that actual revenues are less than expected.
False
Service-sector companies have no use of variance analysis as only few costs can be traced to their outputs in a cost effective way.
False
The only difference between the static budget and flexible budget is that the static budget is prepared using actual prices charged and costs per units incurred.
False
Name the three inventory methods commonly associated with process costing.
First-in, first out Weighted average Standard costing
What is the IRS's requirement for tax reporting regarding the choice of a denominator-level capacity concept?
For tax reporting in the United States, the IRS requires only that indirect production costs are "fairly" apportioned among all items produced.
IMA Principles of Ethics
Honesty, Fairness, Objectivity, and Responsibility
What is a weakness of the accrual accounting rate-of-return method?
Ignores the time value of money and does not consider the cash flows for a project.
The minimum transfer price equals ________.
Incremental costs plus opportunity costs
Which of the following is a responsibility center to measure the revenues and costs of subunits in centralized or decentralized companies?
Investment center
Which of the following statements is true of the sales method of accounting for byproducts?
It allows a firm to manage its reported earnings by timing the sale of byproducts.
Which of the following is true of goal congruence?
It exists when individuals and groups work toward achieving the organization's goals.
Which of the following is true of long-run pricing?
It is a strategic decision designed to build long-run relationships with customers based on stable and predictable prices.
Which of the following statements best define split off point in joint costing?
It is the juncture in a joint production process when two or more products become separately identifiable.
Which of the following statements is true of the production method of accounting for byproducts?
It is the preferred method because of the matching principle.
Which of the following best describes a transfer price?
It is the price one subunit charges for a product or service supplied to another subunit of the same organization.
Which of the following is a disadvantage of single−rate method?
It may lead operating department managers to make sub−optimal decisions that are in their own best interest.
Which of the following is regarded as a purpose of cost allocation?
It provides information for economic decisions.
When the selling prices of all products at the split-off point are unavailable, the ________ is the best alternative for allocating joint costs.
NRV method
What is a weakness of the payback method?
Neglects the time value of money and the cash flows after the payback period.
Differences in operating income between variable costing and absorption costing are due solely to accounting for fixed costs. Do you agree?
No, differences in operating income between variable costing and absorption costing are due to accounting for fixed manufacturing costs.
"Transferred-in costs are those costs incurred in the preceding accounting period." Do you agree? Explain.
No. Transferred-in costs or previous department costs are costs incurred in a previous department that have been charged to a subsequent department. These costs may be costs incurred in that previous department during this accounting period or a preceding accounting period.
"Normal spoilage is planned spoilage." Discuss.
Normal spoilage is spoilage inherent in a particular production process that arises even under efficient operating conditions. Management decides the spoilage rate it considers normal depending on the production process.
Which of the following factors would guide you in classifying a product as a main product or byproduct?
Percentage of total sales value
In planning and control of capacity costs, managers must consider possible capacity measures. Which of the following measures the available supply of capacity in a factory?
Practical capacity
In process costing, why are costs often divided into two main classifications?
Process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process. Often, only two cost classifications, direct materials and conversion costs, are necessary. Direct materials are frequently added at the start or end of the process and conversion costs are often added throughout the process.
Which of the following is a TRUE statement regarding the treatment of scrap by a firm?
Revenue received from the sale of scrap on a job lowers the total costs for that job.
What is a strength of the payback method?
Simple and easy to understand and is a handy method when screening many proposals, particularly when predicted cash flows in later years are highly uncertain.
A company should accept for investment all positive NPV investment alternatives when which of the following conditions is true?
The company has virtually unlimited resources for capital investment.
Describe three criteria you would use to evaluate whether a management control system is effective.
The control system is able to motivate managers and employees to put in effort to attain selected goals desired by top management. The control system is designed to support the organizational responsibilities of individual managers. The control system is closely aligned to an organization's strategies and goals.
Describe the downward demand spiral and its implications for pricing decisions.
The downward demand spiral is the continuing reduction in demand for a company's product 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.
What is a target cost per unit?
The estimated long-run cost per unit of a product or service that, when sold at the target price, enables the company to achieve the targeted operating income per unit.
When a product is the result of a joint process, the decision to process the product past the split−off point further should be influenced by which of the following measures?
The incremental operating income earned past the split−off point
The incremental revenue allocation method
The incremental revenue allocation method ranks individual products in a bundle according to criteria determined by management and then uses this ranking to allocate bundled revenues to the individual products.
Theoretical Capacity
The maximum output capability, allowing for no adjustments for preventive maintenance, unplanned downtime, or the like.
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?
The theoretical capacity and the practical capacity concepts emphasize the output a plant can supply. The normal capacity utilization and the master-budget capacity utilization concepts emphasize the demand for a plant's output.
The stand-alone revenue-allocation method
The stand-alone revenue-allocation method uses product-specific information on the products in the bundle as weights for allocating the bundled revenues to the individual products.
A difference between the static−budget and the flexible−budget amounts is called the sales−volume variance.
True
A master budget is called a static budget because it is developed around a single planned output level.
True
A variance is the difference between the actual cost for the current and expected (or budgeted) performance.
True
Managers can use variance analysis to make decisions about the mix of products to make
True
The costs related to buildings (such as rent and insurance), equipment (such as lease payments or straight-line depreciation), and salaried labor in a factory are all examples of cost items that would be part of the fixed overhead budget.
True
When a company has no opening or ending inventory during the month, the cost per unit is calculated by dividing the total costs incurred in the period by the total units produced during the period.
True
Which of the following is a cost that, if eliminated, would reduce the actual or perceived value or utility (usefulness) customers experience from using the product or service?
Value-added cost
Transferred-in costs are treated as if they are:
a separate direct material added at the beginning of the process
Assume a manufacturing company that has started production in the current year. Which of the following would result in the highest profit being reported if the company has 1,000 units of ending inventory?
absorption costing
When variable overhead spending variance is unfavorable, it can be safely assumed that ________.
actual rate per unit of cost-allocation base is higher than budgeted rate Your answer is correct.
If a company set a standard of zero rework ________.
all rework is treated as abnormal and is written off as a cost of the current period
How does the sales value at split-off method allocate joint costs?
allocates joint costs to joint products on the basis of the relative total sales value at the split-off point
The reciprocal allocation method
allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments.
The step-down allocation method
allocates support-department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments.
practical capacity
amount of production possible assuming only the expected downtime for scheduled maintenance and normal breaks and vacations
Management by exception is a practice whereby managers focus more closely on ________.
areas not operating as anticipated and less closely on areas that are operating as anticipated
Most of the decisions determining the level of fixed overhead costs to be incurred will be made ________.
at the start of a budget period
In a process-costing system average unit costs are calculated ________.
by dividing total costs in a given accounting period by total units produced in that period
The flexible budget contains ________.
budgeted amounts for actual output
Which of the following is the best description of price discrimination?
charging different prices to different customers or clients for the same products or services
The constant gross-margin percentage NRV method of joint cost allocation ________.
computes gross margin before allocating the costs to the products
Which of the following best describes customer life-cycle costs ?
costs to the customers for buying and using a product.
An advantage of a negotiated transfer price of a product to be transferred between divisions is the ________.
negotiated transfer price preserves divisional autonomy
When spoiled goods have a disposal value, the net cost of the spoilage is computed by ________.
deducting disposal value from the costs of the spoiled goods accumulated to the inspection point
Predatory pricing is a type of price discrimination that ________.
deliberately sets prices very low, sometimes even below costs, to minimize competition
The accrual accounting rate-of-return is a method for analyzing the financial aspects of projects that
divides an accrual accounting measure of average annual income of a project by an accrual accounting measure of investment.
Which of the following would be the case under the stand−alone method of allocating common costs ?
each party bears a proportionate share of the total costs in relation to their individual stand−alone costs
In the computation of the cost per equivalent unit, the weighted-average method of process costing considers all the costs:
entering work in process from the units in beginning inventory plus the costs for the work completed during the current accounting period
Which of the following formulas would calculate the net realizable value of a product?
final sales value minus separable costs
Under standard costing, ________.
fixed overhead costs are treated as if they are a variable cost
When companies do not want to use market prices or find it too costly, they typically use ________ prices, even though suboptimal decisions may occur.
full−cost
Normal spoilage is computed on the basis of the number of ________.
good units that pass inspection during the current period
Which of the following is a market-based approach to allocating joint costs?
net realizable value
Fixed overhead costs ________.
have no efficiency variance
Excluding spoiled units in the equivalent−unit calculation results in ________.
higher cost per good unit
The direct allocation method
ignores any services rendered by one support department to another; it allocates each support department's costs directly to the operating departments.
Decentralization
is an organizational structure that gives managers at lower levels the freedom to make decisions
Which of the following is an advantage of using practical capacity to allocate costs?
is that it focuses management's attention on managing unused capacity
Scrap
is the residual material that results from manufacturing a product. It has low total sales value compared to the total sales value of the product.
Rework
is units of production that do not meet the specifications required by customers but which are subsequently repaired and sold as good finished units.
Spoilage
is units of production that do not meet the standards required by customers for good units and that are discarded or sold at reduced prices.
Which of the following describes who the direct allocation method allocates support−department costs?
it allocates each support−department's costs to operating departments only
Life-cycle costing is best described by which of the following?
it is the process of tracking and accumulating business function costs across the entire value chain
Which if the following is a negative consequence of recording byproducts in the accounting records when the sale occurs?
managers can be tempted to stockpile byproducts
Payback is a method for analyzing the financial aspects of projects that
measures the time it will take to recoup, in the form of expected future net cash inflows, the net initial investment in a project.
Predatory pricing
occurs when a business deliberately prices below its costs in an effort to drive competitors out of the market
Dumping
occurs when a non-U.S. company sells a product in the United States at a price below the market value in the country where it is produced
The costs of unused capacity are highlighted when ________.
practical capacity−based allocations are used
Early inspections can ________.
prevent any further costs being wasted on units that are already spoiled
Which method of accounting recognizes byproducts in the financial statements at the time their production is completed?
production method
Revenue allocation is used when:
revenues are related to a particular revenue object but cannot be traced to it in an economically feasible way
Throughput contribution equals ________.
revenues minus all direct material cost of goods sold
The method that allocates costs in each cost pool using the same rate per unit is known as the:
single−rate cost allocation method
The inspection point is the ________.
stage of the production cycle where products are checked to determine whether they are acceptable or unacceptable units
The weighted-average process-costing method calculates the equivalent units by:
the equivalent units completed during the current period plus the equivalent units in ending inventory
Master-budget capacity utilization
the level of capacity utilization that managers expect for the current budget period, which is typically one year
normal capacity utilization
the level of capacity utilization that satisfies average customer demand over a period that includes seasonal, cyclical, and trend factors
As a general rule of economics, companies should only produce and sell units as long as ________.
the revenue from an additional unit exceeds the cost of producing it
Transferring products internally at a market price leads to optimal decisions when all of the following conditions are prevalent except:
there are additional benefits to the company by selling in the external markets instead of transferring internally
Which of the following would not be a GAAP or managerial accounting reason for allocating joint costs?
to avoid generating "negative" revenue when disposal costs are considered
Variance analysis should be used ________.
to understand why variances arise and to improve future performance
Throughput is a variation of which of the following systems?
variable costing
The contribution-margin format is used for ________.
variable costing income statement
One possible reason for unfavorable variable overhead efficiency variance for materials handling is ________.
very tight standards for materials-handling time
Collusive pricing
when companies in an industry conspire in their pricing and production decisions to achieve a price above the competitive price
Describe how flexible-budget variance analysis can be used in the control of costs of activity areas.
Flexible-budget variance analysis can be used in the control of costs in an activity area by isolating spending and efficiency variances at different levels in the cost hierarchy. This is the correct answer.
"The difference between practical capacity and master-budget capacity utilization is the best measure of management's ability to balance the costs of having too much capacity and having too little capacity." Do you agree? If not, explain.
No, the costs of having too much capacity/too little capacity involve revenue opportunities potentially forgone as well as costs of money tied up in plant assets.
Which of the following choices is the practice of charging a higher price for the same product or service when demand approaches the physical limit of the capacity to produce that product or service?
Peak-load pricing
What is a strength of the accrual accounting rate-of-return method?
Simple, easy to understand, and considers profitability.
Determine the choice that gives the best examples of value-added costs and nonvalue-added costs.
Value-added costs are costs of materials and direct labor. Nonvalue-added costs are costs of rework and scrap.
Assuming beginning work in process is zero, the equivalent units of production computed using FIFO versus weighted average will have the following relationship:
Weighted-average equivalent units will be equal to FIFO equivalent units.
The fixed overhead cost variance can be further subdivided into the ________.
flexible-budget variance and the production-volume variance