Cost Accounting Final

Companies generally follow one of two basic strategies: 1) providing a quality product or service at low prices, or 2) offering a unique product or service often priced higher than competing products.

True

Companies with a greater proportion of fixed costs have a greater risk of loss than companies with a greater proportion of variable costs.

True

Cost management involves long-term and short-term decisions that attempt to increase value for customers and lower costs of products or services.

True

Cost-volume-profit analysis may be used for multi-product analysis when the proportion of different products remains constant.

True

Costs that are difficult to change over the short run are always variable over the long run.

True

Customers are demanding increased levels of performance in all aspects of the value chain and the supply chain.

True

Economic plausibility is an important criterion for choosing a cost driver.

True

If the selling price per unit of a product is $30, variable costs per unit are $20, and total fixed costs are $10,000 and a company sells 5,000 units, operating income would be $40,000.

True

If the selling price per unit of a product is $50, variable costs per unit are $40, and total fixed costs are $50,000, a company must sell 6,000 units to make a target operating income of $10,000.

True

Management accounting: a. focuses on estimating future revenues, costs, and other measures to forecast activities and their results b. provides information about the company as a whole c. reports information that has occurred in the past that is verifiable and reliable d. provides information that is generally available only on a quarterly or annual basis

A. focuses on estimating future revenues, costs, and other measures to forecast activities and their results

The person MOST likely to use management accounting information is a(n): a. banker evaluating a credit application b. shareholder evaluating a stock investment c. governmental taxing authority d. assembly department supervisor

D. assembly department supervisor

A cost object is always either a product or a service.

False

A linear cost function can only represent fixed cost behavior.

False

An ideal database should consist of data that could be used for a single purpose only.

False

Any linear cost function can be graphed by knowing only the slope coefficient.

False

Costs are accounted for in two basic stages: assignment followed by accumulation.

False

Financial accounting reports financial and nonfinancial information that helps managers implement company strategies.

False

Fixed costs depend on the resources used, not the resources acquired.

False

For best results, cost management emphasizes independently coordinating supply chain activities within your company and not interfering with other companies.

False

In CVP analysis, an assumption is made that the total revenues are linear with respect to output units, but that total costs are non-linear with respect to output units.

False

It can be inferred that when there is a high correlation between two variables, one is the cause of the other.

False

It is assumed in CVP analysis that the unit selling price, unit variable costs, and unit fixed costs are known and constant.

False

Management accounting information focuses on external reporting.

False

Simple regression is known as "simple" because it is much less complex than the high-low method.

False

The balance sheet, income statement, and statement of cash flows are used for financial accounting, but not for management accounting.

False

The best-designed strategies are valuable whether or not they are effectively implemented

False

The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP).

False

The high-low method is more accurate than the regression method of estimating a cost function.

False

The longer the time horizon, the more likely that a cost will have a fixed cost behavior.

False

Tracking what is happening in other companies is illegal.

False

The cumulative average-time learning model with a 90% learning curve indicates that if it takes 100 minutes to manufacture the first unit of a new model, then the second unit will take only 90 minutes to manufacture.

False: 100 x .90 = 90; (100 + X)/2 = 90; X = 80 minutes

If a company has a degree of operating leverage of 2.0, that means a 20% increase in sales will result in a 40% increase in variable costs.

False: If a company has a degree of operating leverage of 2.0, that means a 20% increase in sales will result in a 40% increase in operating income.

If the selling price per unit is $20 and the contribution margin percentage is 30%, then the variable cost per unit must be $6.

False: Then the variable cost per unit must be $14, [$20 - (.30 x $20)] = $14.

A planned decrease in selling price would be expected to cause an increase in the quantity sold.

True

An appropriate cost driver for shipping costs might be the number of units shipped.

True

An expected value is the weighted average of the outcomes, with the probability of each outcome serving as the weight.

True

Management accountants might provide information on decisions on whether to buy a product from outside or manufacture it in-house.

True

Multicollinearity exists in multiple regression when two or more independent variables are highly correlated with each other.

True

Multicollinearity is NOT a concern in simple regression.

True

Sensitivity analysis is a "what-if" technique that managers use to examine how a result will change if the originally predicted data are not achieved or if an underlying assumption changes.

True

Some fixed costs may be classified as direct manufacturing costs.

True

Technological innovation has led to shorter product-life cycles and a need to bring new products to market more rapidly.

True

The key to a company's success is creating value for customers while differentiating itself from its competitors.

True

The same cost may be direct for one cost object and indirect for another cost object.

True

The smaller the vertical difference between actual costs and predicted costs the better the goodness of fit.

True

When estimating a cost function, cost behavior can be approximated by a linear cost function within the relevant range.

True

Classify each cost item into one of the business functions of the value chain, either (1) R&D, (2) design, (3) production, (4) marketing, (5) distribution, or (6) customer service. Item: a. cost of samples mailed to promote sales of a new product b. labor cost of workers in the manufacturing plant c. bonus paid to a person with a 90% satisfaction rating in handling customers with complaints d. transportation costs for shipping products to retail outlets

a. (4) marketing b. (3) production c. (6) customer service d. (5) distribution

Kaiser's Kraft Korner sells a single product. 7,000 units were sold resulting in $70,000 of sales revenue, $28,000 of variable costs, and $12,000 of fixed costs. Breakeven point in units is: a. 2,000 units b. 3,000 units c. 5,000 units d. None of these answers are correct.

a. 2,000 units $10X - $4X - $12,000 = 0; X = 2,000 units

Fixed costs: a. are considered variable costs over the long run b. provide less operating leverage c. reduce the risk of loss d. are graphed as a steeply sloped line

a. are considered variable costs over the long run

The account analysis method estimates cost functions: a. by classifying cost accounts as variable, fixed, or mixed based on qualitative analysis b. using time-and-motion studies c. at a high cost, which renders it seldom used d. in a manner that cannot be usefully combined with any other cost estimation methods

a. by classifying cost accounts as variable, fixed, or mixed based on qualitative analysis

When using the high-low method, the two observations used are the high and low observations of the: a. cost driver b. dependent variables c. slope coefficient b. residual term

a. cost driver

Which of the following will increase a company's breakeven point? a. increasing variable cost per unit b. increasing contribution margin per unit c. reducing its total fixed costs d. increasing the selling price per unit

a. increasing variable cost per unit

Manufacturing overhead costs are also referred to as: a. indirect manufacturing costs b. prime costs c. period costs d. direct material

a. indirect manufacturing costs

The slope of the line of regression is the: a. rate at which the dependent variable varies b. rate at which the independent variable varies c. level of total fixed costs d. level of total variable costs

a. rate at which the dependent variable varies

The smaller the residual term the: a. stronger the relationship between the cost driver and costs b. weaker the relationship between the cost driver and costs c. steeper the slope of the cost function d. gentler the slope of the cost function

a. stronger the relationship between the cost driver and costs

A learning curve is a function: a. that measures the decline in labor-hours per unit due to workers becoming better at a job b. that increases at a greater rate as workers become more familiar with their tasks c. where unit costs increase as productivity increases d. that is linear

a. that measures the decline in labor-hours per unit due to workers becoming better at a job

Which cost estimation method analyzes accounts in the subsidiary ledger as variable, fixed, or mixed using qualitative methods? a. the account analysis method b. the conference method c. the industrial engineering method d. the quantitative analysis method

a. the account analysis method

When fixed costs are $100,000 and variable costs are 20% of the selling price, then breakeven sales are: a. $100,000 b. $125,000 c. $500,000 d. indeterminable

b. $125,000 $100,000 / (1- 0.20) = $125,000 in BE sales

Kaiser's Kraft Korner sells a single product. 7,000 units were sold resulting in $70,000 of sales revenue, $28,000 of variable costs, and $12,000 of fixed costs. If sales increase by $25,000, operating income will increase by: a. $10,000 b. $15,000 c. $22,200 d. None of these answers are correct.

b. $15,000 [($70,000 - $28,000) / $70,000] x $25,000 = $15,000

Schuppener Company sells its only product for $18 per unit, variable production costs are $6 per unit, and selling and administrative costs are $3 per unit. Fixed costs for 10,000 units are $10,000. The contribution margin is: a. $12 per unit b. $9 per unit c. $11 per unit d. $8 per unit

b. $9 per unit $18 - $6 - $3 = $9

Place the following steps in order for estimating a cost function using quantitative analysis: A = Plot the data B = Estimate the cost function C = Choose the dependent variable D = Identify the cost driver a. D C A B b. C D A B c. A D C B d. D C B A

b. C D A B

Which of the following statements is FALSE? a. There is a cause-and-effect relationship between the cost driver and the level of activity. b. Fixed costs have cost drivers over the short run. c. Over the long run all costs have cost drivers. d. Volume of production is a cost driver of direct manufacturing costs.

b. Fixed costs have cost drivers over the short run.

Which of the following items is NOT an assumption of CVP analysis? a. Total costs can be divided into a fixed component and a component that is variable with respect to the level of output. b. When graphed, total costs curve upward. c. The unit-selling price is known and constant. d. All revenues and costs can be added and compared without taking into account the time value of money.

b. When graphed, total costs curve upward.

A plot of data that results in bunched points with little slope generally indicates: a. a strong relationship b. a weak relationship c. a positive relationship d. a negative relationship

b. a weak relationship

Gathering cost information through observations and interviews from departments within an organization is known as the: a. account analysis method b. conference method c. industrial engineering method d. quantitative analysis method

b. conference method

If each furnace requires a hose that costs $20 and 2,000 furnaces are produced for the month, the total cost for hoses is: a. considered to be a direct fixed cost b. considered to be a direct variable cost c. considered to be an indirect fixed cost d. considered to be an indirect variable cost

b. considered to be a direct variable cost

The general term used to identify both the tracing and the allocation of accumulated costs to a cost object is: a. cost accumulation b. cost assignment c. cost tracing d. conversion costing

b. cost assignment

If the tax rate is t, it is possible to calculate planned operating income by: a. dividing net operating income by t b. dividing net operating income by 1- t c. multiplying net operating income by t d. multiplying net operating income by 1- t

b. dividing net operating income by 1- t

Dougherty Company employs 20 individuals. Eight employees are paid $12 per hour and the rest are salaried employees paid $3,000 a month. How would total costs of personnel be classified? a. variable b. mixed c. a variable cost within a relevant range d. a fixed cost within a relevant range

b. mixed

A manufacturing plant produces two product lines: football equipment and hockey equipment. Direct costs for the football equipment line are the: a. beverages provided daily in the plant break room b. monthly lease payments for a specialized piece of equipment needed to manufacture the football helmet c. salaries of the clerical staff that work in the company administrative offices d. utilities paid for the manufacturing plant

b. monthly lease payments for a specialized piece of equipment needed to manufacture the football helmet

The breakeven point decreases if: a. the variable cost per unit increases b. total fixed costs decrease c. the contribution margin per unit decreases d. the selling price per unit decreases

b. total fixed costs decrease

For January, the cost components of a picture frame include $0.35 for the glass, $.65 for the wooden frame, and $0.80 for assembly. The assembly desk and tools cost $400. 1,000 frames are expected to be produced in the coming year. What cost function best represents these costs? a. y = 1.80 + 400X b. y = 400 +1.80X c. y = 2.20 + 1,000X d. y = 1.00 + 400X

b. y = 400 +1.80X

Trailhound Company operates on a contribution margin of 30% and currently has fixed costs of $200,000. Next year, sales are projected to be $1,000,000. An advertising campaign is being evaluated that costs an additional $30,000. How much would sales have to increase to justify the additional expenditure? a. $60,000 b. $90,000 c. $100,000 d. $300,000

c. $100,000 $30,000 / .3 = $100,000

Kaiser's Kraft Korner sells a single product. 7,000 units were sold resulting in $70,000 of sales revenue, $28,000 of variable costs, and $12,000 of fixed costs. Contribution margin per unit is a. $4.00 b. $4.29 c. $6.00 d. None of these answers are correct.

c. $6.00

Kaiser's Kraft Korner sells a single product. 7,000 units were sold resulting in $70,000 of sales revenue, $28,000 of variable costs, and $12,000 of fixed costs. The number of units that must be sold to achieve $60,000 of operating income is: a. 10,000 units b. 11,666 units c. 12,000 units d. None of these answers are correct.

c. 12,000 units 10X - 4X - 12,000 = 60,000; X = 12,000 units

Place the four business functions in the order they appear along the value chain: A = Customer service B = Design C = Distribution D = Production a. A B D C b. A C D B c. B D C A d. B A D C

c. B D C A

Which of the following companies is part of the merchandising sector of our economy? a. General Motors b. Intel c. The GAP d. Robert Meyer Accounting Firm

c. The GAP

Which of the following items is NOT an assumption of CVP analysis? a. Costs may be separated into separate fixed and variable components. b. Total revenues and total costs are linear in relation to output units. c. Unit selling price, unit variable costs, and unit fixed costs are known and remain constant. d. Proportion of different products will remain constant when multiple products are sold.

c. Unit selling price, unit variable costs, and unit fixed costs are known and remain constant.

Which of the following does NOT represent a cause-and-effect relationship? a. Material costs increase as the number of units produced increases. b. A company is charged 40 cents for each brochure printed and mailed. c. Utility costs increase at the same time that insurance costs increase. d. It makes sense that if a complex product has a large number of parts it will take longer to assemble than a simple product with fewer parts.

c. Utility costs increase at the same time that insurance costs increase.

Strategy is formulated by answering all of the following EXCEPT: a. Who are our most important customers? b. Is industry demand growing or shrinking? c. Will our external auditors certify our strategy? d. How sensitive are purchasers to price, quality, and service?

c. Will our external auditors certify our strategy?

Google, an internet search firm, would be classified as: a. a manufacturing-sector company b. a merchandising-sector company c. a service sector company d. None of these answers are correct.

c. a service sector company

The approaches and activities of managers in short-run and long-run planning and control decisions that increase value for customers and lower costs of products and services are known as: a. value chain management b. enterprise resource planning c. cost management d. customer value management

c. cost management

The strategy MOST likely to reduce the breakeven point would be to: a. increase both the fixed costs and the contribution margin b. decrease both the fixed costs and the contribution margin c. decrease the fixed costs and increase the contribution margin d. increase the fixed costs and decrease the contribution margin

c. decrease the fixed costs and increase the contribution margin

The cost function y = 1,000 + 5X a. has a slope coefficient of 1,000 b. has an intercept of 5 c. is a straight line d. represents a fixed cost

c. is a straight line

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

c. match the actual cost observations

Cross-sectional data analysis includes: a. using a variety of time periods to measure the dependent variable b. using the highest and lowest observation c. observing different entities during the same time period d. comparing information in different cost pools

c. observing different entities during the same time period

Cost-volume-profit analysis assumes all of the following EXCEPT: a. all costs are variable or fixed b. units manufactured equal units sold c. total variable costs remain the same over the relevant range d. total fixed costs remain the same over the relevant range

c. total variable costs remain the same over the relevant range

Which of the following is an equation of a variable cost function? a. y = b b. y = a + bX c. y = bX d. y = a

c. y = bX

Manufacturing costs include all of the following EXCEPT: a. costs incurred inside the factory b. both direct and indirect costs c. both variable and fixed costs d. both inventoriable and period costs

d. both inventoriable and period costs

The contribution income statement: a. reports gross margin b. is allowed for external reporting to shareholders c. categorizes costs as either direct or indirect d. can be used to predict future profits at different levels of activity

d. can be used to predict future profits at different levels of activity

The selling price per unit less the variable cost per unit is the: a. fixed cost per unit b. gross margin c. margin of safety d. contribution margin per unit

d. contribution margin per unit

The determination of a cost as either direct or indirect depends upon the: a. accounting system b. allocation system c. cost tracing system d. cost object chosen

d. cost object chosen

For a manufacturing company, direct material costs may be included in: a. direct materials inventory only b. merchandise inventory only c. both work-in-process inventory and finished goods inventory d. direct materials inventory, work-in-process inventory, and finished goods inventory accounts

d. direct materials inventory, work-in-process inventory, and finished goods inventory accounts

Over the short run, a nonlinear cost function would MOST likely result from all of the following EXCEPT: a. quantity discounts for each additional 10,000 parts purchased b. purchasing another $250,000 printing machine to double production c. hiring a third production supervisor d. incurring greater total utility costs for each machine-hour of operation

d. incurring greater total utility costs for each machine-hour of operation

Indirect manufacturing costs: a. can be traced to the product that created the costs b. can be easily identified with the cost object c. generally include the cost of material and the cost of labor d. may include both variable and fixed costs

d. may include both variable and fixed costs

Service-sector companies report: a. only merchandise inventory b. only finished goods inventory c. direct materials inventory, work-in-process inventory, and finished goods inventory accounts d. no inventory accounts

d. no inventory accounts

Assume there is a reduction in the selling price and all other CVP parameters remain constant. This change will: a. increase contribution margin b. reduce fixed costs c. increase variable costs d. reduce operating income

d. reduce operating income

The breakeven point is the activity level where: a. revenues equal fixed costs b. revenues equal variable costs c. contribution margin equals variable costs d. revenues equal the sum of variable and fixed costs

d. revenues equal the sum of variable and fixed costs

An understanding of the underlying behavior of costs helps in all of the following EXCEPT: a. costs can be better estimated as volume expands and contracts b. true costs can be better evaluated c. process inefficiencies can be better identified and as a result improved d. sales volume can be better estimated

d. sales volume can be better estimated

Which cost estimation method uses a formal mathematical method to develop cost functions based on past data? a. the account analysis method b. the conference method c. the industrial engineering method d. the quantitative analysis method

d. the quantitative analysis method