Cost Accounting Quiz

Which of the following is the correct formula for the materials price variance? (Actual price of input - Budgeted price of input) x Actual quantity of input (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Budgeted price of input (Actual price of input - Budgeted price of input) x Budgeted quantity of input (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Actual price of input

(Actual price of input - Budgeted price of input) x Actual quantity of input

Aqua Company produces two products-Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta is based on customer orders and is custom designed. Also, 55% of Beta's cost is shared between design and setup costs, while Alpha's major portions of costs are direct costs. Alpha is using a single cost pool to allocate indirect costs. Which of the following statements is true of Aqua? Aqua will overcost Beta's direct costs as it is using a single cost pool to allocate indirect costs. Aqua will overcost Beta's indirect costs because beta has high indirect costs. Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs. Aqua will undercost Alpha's indirect costs because alpha has high direct costs.

Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs.

Advanced Technology Products produces 10 different fastners. Each time a type of fastener is produced, the equipment must be stopped and items such as filters and drill bits must be changed, oil must be added to the equipment and some parts need lubrication. This work must be done before the products can be produced, the costs related to this activity would be part of which cost pool? Product-sustaining costs Output-level costs Service-sustaining costs Batch-level costs

Batch-level costs

Put the following ABC implementation steps in order ________. A Compute the allocation rates. B Compute the total cost of the products. C Identify the products that are the cost objects. D Select the cost allocation bases. DBCA BADC DACB CDAB

CDAB

True or False: When benchmarking it is best when management accountants simply analyze the costs and allow management to provide the insight as to why the revenues and costs differ between companies.

False

Which of the following is true of flexible budget? It calculates contribution margin by multiplying budgeted units by actual contribution margin per unit. It calculates revenues by multiplying budgeted units by actual selling price per unit. It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit. It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.

It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.

Which of the following is true of refinement of a costing system? It is likely to yield the most decision-making benefits when direct costs are a high percentage of total costs. A homogeneous cost pool will use multiple cost drivers to allocate costs. While refining a costing system, companies should identify as many indirect costs as is economically feasible. It reduces the use of broad averages for assigning the cost of resources to cost objects.

It reduces the use of broad averages for assigning the cost of resources to cost objects.

Using department indirect-cost rates to allocate costs will result in results similar to ABC if: several activities cause a small portion of the costs of the department a single activity accounts for a sizable portion of the costs of the department a single activity accounts for a small portion of the costs of the department several activities cause a sizable portion of the costs of the department

a single activity accounts for a sizable portion of the costs of the department

The fundamental cost objects of ABC are ________. products activities services cost drivers

activities

An efficiency variance reflects the difference between ________. an actual input quantity used in a company and its main competitors a standard input quantity in a company and its main competitors an actual input quantity and a budgeted input quantity actual input quantities used last period and current period

an actual input quantity and a budgeted input quantity

Nonfinancial performance measures ________. are often the sole basis of a manager's performance evaluations are rarely used to evaluate overall efficiency allow managers to make informed tradeoffs are usually used in combination with financial measures for control purposes

are usually used in combination with financial measures for control purposes

A master budget is ________. a type of flexible budget once actual results are known a budget which starts from a zero base based on the level of expected output at the start of the budget period developed at the end of a period

based on the level of expected output at the start of the budget period

A well-designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis ________. emphasizes how managers can achieve higher sales can be used to eliminate nonvalue-added activities is easy to analyze and interpret takes the choices and judgment challenges away from the managers

can be used to eliminate nonvalue-added activities

Demand for refinements to the costing system has accelerated due to ________. competition in product markets increase in direct costs decrease in indirect costs decrease in product diversity

competition in product markets

An unfavorable sales-volume variance could result from ________. a decrease in actual selling price compared to anticipated selling price competitors taking market share an inappropriate assignment of labor or machines to specific jobs an inefficiency of a purchasing manager in bargaining with suppliers

competitors taking market share

For a manufacturing firm that produces multiple families of products requiring various combinations of different types of parts, what would be the best allocation base for human resource adminstration costs? direct labor hours number of parts purchased machine hours electricity costs

direct labor hours

For a manufacturing firm that produces multiple families of products requiring various combinations of different types of parts, what would be the best allocation base for human resource adminstration costs? machine hours number of parts purchased direct labor hours electricity costs

direct labor hours

The degree to which a predetermined objective or target is met is known as ________. efficiency marking variance effectiveness

effectiveness

These questions refer to flexible-budget variance formulas with the following descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity. Which variance is calculated using the formula (AQ - BQ) BP is the ________. price variance spending variance total flexible-budget variance efficiency variance

efficiency variance

These questions refer to flexible-budget variance formulas with the following descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity. Which variance is calculated using the formula (AQ - BQ) BP is the ________. total flexible-budget variance price variance efficiency variance spending variance

efficiency variance

Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________. never consider interactions between different departments in assigning support costs use a broad average to allocate all overhead costs use single cost pool for all overhead costs, thereby enabling simplicity establish a cause-and-effect relationship with the activities performed

establish a cause-and-effect relationship with the activities performed

Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________. use a broad average to allocate all overhead costs use single cost pool for all overhead costs, thereby enabling simplicity never consider interactions between different departments in assigning support costs establish a cause-and-effect relationship with the activities performed

establish a cause-and-effect relationships with the activities performed

For a company which produce its products in batches, the CEO's salary is a(n) ________ cost. output unit-level batch-level product-sustaining facility-sustaining

facility-sustaining

Top management compensation cost is an example of ________ in the cost hierarchy. unit-level costs facility-sustaining costs batch-level costs product-sustaining costs

facility-sustaining costs

In a flexible budget ________. fixed costs are kept at the same level of static budget fixed costs are calculated proportionately for the actual level of sales variable costs are kept at the same level of static budget variable costs are calculated proportionately for the budgeted level of sales

fixed costs are kept at the same level of static budget

ABC systems help managers to ________. evaluate direct material costs more efficiently value ending inventory more accurately improve the inventory turnaround time identify new designs to reduce costs

identify new designs to reduce costs

ABC systems help managers to ________. improve the inventory turnaround time value ending inventory more accurately identify new designs to reduce costs evaluate direct material costs more efficiently

identify new designs to reduce costs

Benchmarking is a process ________. which is based on calculating the breakeven point and analyzing the consequences of changes in various factors calculating the breakeven point in which a firm's performance levels are compared against the best levels of performance in competing companies or in companies having similar processes in which the underlying processes of an organization is optimized using a systematic approach to achieve more efficient goals in which overhead costs are absorbed into units of output, or 'jobs'

in which a firm's performance levels are compared against the best levels of performance in competing companies or in companies having similar processes

Service companies, in particular, find great value from ABC because a vast majority of their cost structure is composed of ________ costs. indirect factory committed prime

indirect

Activity based costing system differs from traditional costing systems in the treatment of ________. indirect costs direct labor costs direct material costs prime costs

indirect costs

Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours), the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set. The reduction in cost per unit of wooden chess pieces under ABC system is due to difference in allocation of ________. prime costs labor costs material costs indirect costs

indirect costs

For a company with diverse products, undercosting overhead of a product will lead to product-cross -subsidization which means that: direct labor costs of the product are misallocated indirect costs of another product are misallocated direct material costs of the product are misallocated direct costs of another product are misallocated

indirect costs of another product are misallocated

Which of the following has accelerated need for refined cost systems? a shift toward increased direct costs intense competition rising prices global monopolies

intense competition

Which of the following is the correct formula for the materials price variance? (Actual price of input - Budgeted price of input) x Actual quantity of input (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Actual price of input (Actual price of input - Budgeted price of input) x Budgeted quantity of input (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Budgeted price of input

(Actual price of input - Budgeted price of input) X Actual quantity of input

If management experiences an unfavorable direct materials efficiency variance, which of the following would not be the possible corrective action? Purchase higher quality materials Provide additional training for the direct laborers Negotiate lower prices for material acquisition Improve the design of the product

Negotiate lower prices for material acquisition

Which of the following is a sign that an ABC system may be useful for an organization? Operations staff disagrees with accountants about the costs of manufacturing and marketing products and services. Products make similar demands on resources because of similarities in volume, process steps, batch size, or complexity. Significant amounts of indirect costs are allocated using multiple cost pools. Many indirect costs are described as batch-level costs, product-sustaining costs, or facility-sustaining costs.

Operations staff disagrees with accountants about the costs of manufacturing and marketing products and services.

Which of the following is a reason that has accelerated the demand for refinements to the costing system? The increasing competition in product markets has led to an increase in contribution margin resulting in a decrease of break even point. The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs. The declining demand for customized products has led managers to decrease the variety of products and services their companies offer. The increased of automated processes has led to the increase in direct manufacturing cost leading to a decrease in break even point.

The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs.

Which of the following is a disadvantage of using the standards developed by a firm itself to develop a budget? The flexible-budget amounts are difficult to determine. A firm's inefficiencies will be part of the data. The expected future changes are not included in the standards. They are not based on realized benchmarks and can be unrealistic

They are not based on realized benchmarks.

Excellent Printing has contracts to complete weekly supplements required by forty-six customers. For the year 2018, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2018, Excellent Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: Cost pool Manufacturing overhead costs Activity level Design changes $ 120,000 200 design changes Setups 640,000 4,000 setups Inspections 80,000 16,000 inspections Total manufacturing overhead costs $840,000 During 2018, two customers, Money Managers and Hospital Systems, are expected to use the following printing services: Activity Money Managers Hospital Systems Pages 60,000 76,000 Design changes 10 2 Setups 20 10 Inspections 30 38 When costs are assigned using the single cost driver, number of pages printed, then Hospital Systems ________. will likely seek to do business with competitors will contribute too little to profits, and Wallace Printing will not want to accept additional work from the company is fairly billed because resources are allocated uniformly to all jobs is grossly under billed for the job, while other jobs will be unfairly over billed

is grossly under billed for the job, while other jobs will be unfairly over billed

Recognizing ABC information is not always perfect because ________. it never measures how the resources of an organization are used it lacks the simplicity that traditional systems used to have to allocate overhead costs it mostly uses far too many indirect cost pools than what is actually required it balances the need for better information against the costs of creating a complex system

it balances the need for better information against the costs of creating a complex system

Which of the following is true of refinement of a costing system? It is likely to yield the most decision-making benefits when direct costs are a high percentage of total costs. A homogeneous cost pool will use multiple cost drivers to allocate costs. While refining a costing system, companies should identify as many indirect costs as is economically feasible. It reduces the use of broad averages for assigning the cost of resources to cost objects.

it reduces the use of broad averages for assigning the cost of resources to cost objects

It only makes sense to implement an ABC system when ________. it traces more costs as direct costs a single product is produced in bulk production process is labor-intensive its benefits exceed its implementation costs

its benefits exceed its implementation costs

Answer the following questions using the information below: Cannady produces six products. Under their traditional cost system using one cost driver, SR6 costs $168.00 per unit. An analysis of the activities and their costs revealed that three cost drivers would be used under the new ABC system. The new cost of SR6 was determined to be $178.00 per unit. The total amount of indirect costs assigned to product SR6 using the traditional method is ________ the total amount assigned using ABC. more than less than equal to more accurate than

less than

________ is an example of an output unit-level cost in the cost hierarchy. Factory rent expense Machine depreciation Top management compensation costs Building security costs

machine depreciation

For a business that offers customers a store where product can be purchased and picked up or a delivery service that can ship the product directly to the customer, which of the following would most likely be the best cost allocation base for distribution costs? Electricity costs for the period Number of products sold number of pounds of product shipped or delivered number of customer service phone calls and emails per period

number of pounds of product shipped or delivered

A purchasing manager's performance is best evaluated using information such as direct manufacturing labor flexible-budget variance direct materials flexible-budget variance price and terms bargaining effectiveness, achievement of quality goals, and direct materials price variance usage efficiency and direct materials price variance

price and terms bargaining effectiveness, achievement of quality goals, and direct materials price variance

The flexible-budget variance for direct cost inputs can be further subdivided into a ________. static-budget variance and a price variance static-budget variance and a sales-volume variance sales-volume variance and an efficiency variance price variance and an efficiency variance

price variance and an efficiency variance

Overcosting a particular product may result in: pricing the product too high pricing the product too low understating total product costs operating efficiencies

pricing the product too high

Lavender Company is a logistics company and has recently implemented ABC system. Using activity-based information, it decides to reduce the bulkiness of the packages delivered, thereby reducing costs. This suggests that ABC system helps managers in ________ decisions. process-improvement product-design pricing product-mix

process-improvement

________ are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced. Product-sustaining costs Batch-level costs Facility-sustaining costs Unit-level costs

product-sustaining costs

Which of the following cost and cost allocation base have a strong cause and effect relationship? administration costs and cubic feet setup costs and square feet quality control costs and the number of inspections machine maintenance and setup hours

quality control costs and the number of inspections

The sales-volume variance is sometimes due to ________. unexpected increase in manufacturing labor time quality problems leading to customer dissatisfaction the difference between selling price and budgeted selling price unexpected increase in the use of quantities of inputs of raw material

quality problems leading to customer dissatisfaction

The sales-volume variance is sometimes due to ________. unexpected increase in manufacturing labor time quality problems leading to customer dissatisfaction unexpected increase in the use of quantities of inputs of raw material the difference between selling price and budgeted selling price

quality problems leading to customer dissatisfaction

Facility-sustaining costs are the costs of activities ________. related to a group of units of a product or services, rather than each individual unit of product or service that managers cannot trace to individual products or services but that support the organization as a whole performed on each individual unit of a product or service such as the cost of energy, machine depreciation, and repair undertaken to support individual products or services regardless of the number of units or batches in which the units are produced

that managers cannot trace to individual products or services but that support the organization as a whole

An unfavorable variance indicates that ________. the budgeted contribution margin is more than the actual amount the actual costs are less than the budgeted costs the actual revenues exceed the budgeted revenues the actual units sold are less than the budgeted units

the actual units sold are less than the budgeted units

Which of the following could be a reason for a favorable material price variance? the purchasing manager giving orders for small quantity to reduce storage cost the personnel manager hiring underskilled workers the purchasing manager accepting a bid from the highest-priced supplier to ensure the quality of material the purchasing manager bargaining effectively with suppliers

the purchasing manager bargaining effectively with suppliers

Using activity-cost rates rather than department indirect-cost rates to allocate costs results in different product costs when ________. a single activity accounts for a sizable portion of department costs different activities have the same cost-allocation base different products use different resources in the same proportion there are several homogeneous cost pools

there are several homogeneous cost pools

A single indirect-cost rate distorts product costs because ________. there is an assumption that all support activities affect all products in a uniform way competitive pricing is ignored it recognizes specific activities that are required to produce a product it assumes all costs are product costs

there is an assumption that all support activities affect all products in a uniform way

When "available time" (i.e., setup-hours) is used to calculate a cost of a resource and to allocate costs to cost objects , the system is called: process costing job costing time-driven activity based costing hybrid costing

time-driven activity based costing

Management accountants use the cost hierarchy to first calculate the ________. factory costs of each product and then they compute labor costs overhead costs of each product and then they compute prime costs labor costs of each product and then they compute material costs total costs of each product and then they compute per-unit costs

total costs of each product and then they compute per-unit costs

Which of the following items will be same for a flexible budget and a master budget? total contribution margin total variable cost total expected revenues total expected fixed costs

total expected fixed costs

With traditional costing systems, products manufactured in small batches and in small annual volumes may be ________ because batch-related and product-sustaining costs are assigned using unit-related drivers. ignored undercosted fairly costed overcosted

undercosted

A favorable price variance for direct manufacturing labor might indicate that ________. unexpected increase in direct labor rates employees were paid more than planned congestion due to scheduling problems underskilled employees are being hired

underskilled employees are being hired

Activity-based costing is most likely to yield benefits for companies ________. with complex product design processes that vary significantly from product to product having nominal percentage of indirect costs in a monopolistic market with operations that remain fairly consistent across product lines

with complex product design processes that vary significantly from product to product

An unfavorable efficiency variance for direct manufacturing labor might indicate that ________. lower-quality materials were purchased more higher-skilled workers were scheduled than planned there is unexpected increase in direct labor rates work is scheduled inefficiently

work is scheduled inefficiently