Cost Final Exam

A decision model is an informal method for making a choice, using simpler methods like surveying.

False

A favorable expense variance results when actual costs exceed budgeted costs

False

A favorable flexible-budget variance for variable costs may be the result of using more input quantities than were budgeted

False

A favorable variance can be automatically interpreted as "good news"

False

A favorable variance indicates that budgeted costs are less than actual costs

False

A favorable variance should be ignored by management

False

A firm's inefficiencies such as the wastage of direct materials, are incorporated in past data. Hence the data represents the ideal performance of a firm.

False

A flexible-budget variance pertaining to revenues is often called a sales-volume variance

False

A standard price is the minimum price a company will have to pay for a unit of input

False

A sunk cost is relevant cost in decision making

False

An incremental product cost is generally a fixed cost

False

An unfavorable variance is conclusive evidence of poor performance

False

Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one-time-only special orders

False

Business function costs are the sum of all variable and fixed costs in all business functions of the value chain

False

Equal weight must be given to qualitative factors and quantitative non-financial factors while making decisions

False

Feedback from previous decisions uses historical information and, therefore, is irrelevant for making future predictions

False

For one-time-only special orders, fixed costs may be relevant but NOT variable costs

False

For revenues items, a favorable variance means that actual revenues are less than expected

False

From the perspective of control, the direct materials price variance should be isolated at the time of sales

False

Full costs of a product include variable and fixed costs in a particular business function in the value chain

False

If variance analysis is used for performance evaluation, managers are encouraged to meet targets using creativity and resourcefulness

False

One advantage of using standard times to develop a budget is they are simple to compile, are based solely on the past actual history, and do not require expected future changes to be taken into account.

False

Qualitative factors are outcomes that can be easily measured in numerical terms, such as the costs of direct labor

False

Revenues that remain the same for two alternatives being examined are relevant revenues

False

Studies show that variance analysis is no longer a popular tool of corporate managers as they have adopted various other forms of performance

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

To prepare budgets based on actual data from past periods is preferred since past inefficiencies are EXCLUDED

False

When preparing a flexible budget, fixed costs must be adjusted to reflect actual costs at actual output

False

Which of the following is true of relevant information?

Future

In the decision making of a one-time-only special order, it is assumed that accepting the special order is not expected to affect the selling price to other customers

True

Management by exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun) and placing less attention on areas operating as anticipated.

True

Marketing costs will be an irrelevant cost in the decision making of a one-time-only special order

True

Past costs are also called sunk costs because they are unavoidable and cannot be changed no matter what action is taken

True

Past costs themselves are always irrelevant when making decisons

True

Qualitative factors are important in the decision-making process even though they cannot be measured numerically

True

Qualitative factors, as well as relevant revenues and relevant costs need to be considered when selecting among alternatives

True

Quantitative factors, such as direct materials costs, are outcomes that are measured in numerical terms

True

Static-budget variance for operating income is calculated by taking a difference between static-budgeted operating income and actual operating income

True

Sunk costs are irrelevant to decision making

True

The flexible-budget variance is the total of price variance and efficiency variance

True

The price variance is the difference between the actual price and the budgeted price of the input, multiplied by the actual quantity of input

True

The rent paid for an already existing facility is an example of a sunk cost

True

Variable cost per unit is the best product cost to use for the one-time-only special order decisions

True

Variances are used for evaluating performance and for motivating managers

True

When actual revenues exceed budgeted revenues, a favorable variance arises

True

When using variance analysis for performance evaluation, managers often focus of effectiveness and efficiency as two of the common attributes used in comparing expected results with actual results

True

An unfavorable sales-volume variance could result from

competitors taking market share

An example of qualitative factor for the decision-making process is

customer satisfaction as determined by written responses given by customers to survey questions

When there is excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price if

incremental revenues exceed incremental costs

A flexible budget

is developed at the end of the period

Which of the following is a firm's risk of outsourcing the production of a part?

leakage of intellectual property

A favorable efficiency variance for direct materials manufacturing labor indicates that

less direct manufacturing labor-hours were used during production than planned for actual output

Producing on schedule, quality of supplier products or services, realiability, along with costs are all important considerations when

making outsourcing decisions

The emphasis on variance analysis and its use in performance evaluation must be such that

management should set targets that challenge but are reasonably achievable and require creativity and resourcefulness by personnel held accountable

Which of the following costs is NOT considered to calculate the minimum acceptable price of a one-time-only special order?

marketing costs

Unit costs data can most mislead decisions by

not computing unit costs at the same output level

If a company does not use one of its limited resources in the best possible way, the lost contribution to income could be called an

opportunity cost

The term for understanding why actual performance deviates from planned performance is

organized learning

Vien's fashion company retains the services of Kennywood Textiles to perform stain control treatments on its women's dresses. This is the practice known as

outsourcing

Which of the following is an example of non-financial performance measure.

percentage of products started and completed without requiring any rework

Which of the following would be considered in a make-or-buy decision

potential rental income from space occupied by the production area

A purchasing manager's performance is best evaluated using information such as

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

price variance and an efficiency variance

If sales-volume variance was caused by poor-quality products, then the _____________ would be in the best position to explain the variance

production manager

In a make-or-buy decision, which of the following would not be relevant?

property taxes on the plant that will still be necessary even if the product is outsourced

For make-or-buy decisions, a supplier's ability to maintain secrecy of intellectual property is considered a

qualitative factor

Employee morale at Dos Santos, Inc. is very high. This type of information is an example of

qualitative factors

The sales-volume variance is sometimes due to

quality problems leading to customer dissatisfaction

In evaluating different alternatives, it is useful to concentrate on

relevant costs

Which of the following costs always differ among future alternatives

relevant costs

Which of the following is an appropriate step when identifying relevant costs to make a business decision?

separating total costs into variable and fixed components

What is not true or relevant information?

significant past investment amounts are relevant to decision making

Which of the following is not true about one-time-only special orders?

special orders would be accepted if they result in an increase in the contribution margin regardless of capacity and long-term implications

Standard cost per output unit for each variable direct cost input is calculated by multiplying

standard input allowed for one output unit by standard price per input unit

An unfavorable variance indicates that

the actual units sold are less than the budgeted units

Opportunity Costs is defined as

the contribution to operating income that is foregone by not using a limited resource in its next-best alternative use

Effectiveness is

the degree to which a predetermined objective or target is met

A variance is

the difference between an actual result and a budgeted performance

A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were

$600 less than standard for the achieved level of activity

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

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

How to find Static-budget variance

(Actual units x Budgeted Selling price) - (Budgeted Units x Price)

Feedback regarding previous actions may affect

- future predictions - implementation of the decision - the decision model

Which of the following can be a reason for a favorable price variance for direct materials?

A decrease in the price of materials due to an oversupply of materials

Explain the difference between a static budget and a flexible budget. Explain what is meant by a static budget variance and a flexible budget variance.

A static budget is one based on the level of output planned at the start of the budgeted costs based on the actual output in the budget period. the only difference between the static budget and the flexible budget is that the static budget is prepared for the planned output, whereas the flexible budget is prepared based on the actual output.

What are sunk costs?

Costs that are unavoidable and cannot be changed no what action is taken

Place the following steps from the five-step decision process in order A= Obtain information including historical costs B= Evaluate C= Make decisions choosing among alternatives D= Make predictions about the future E= Identify the problem and uncertainties

E A D C B

Which of the following is true of flexible budget?

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

Which of the following statements is true about analyzing a single variance?

It can lead to different other variances

A company has a policy "investigate all variances exceeding $3,000 or 15% of the budgeted cost, whichever is lower." There is a variance of $2,000 in repair and maintenance costs of $12,000. What does the Company do in the given situation?

It deserves more attention as it is more than 15% of total repair costs

Which of the following is true of an opportunity cost?

It is the income foregone by not using a resource in an alternative way

Which of the following is true of variance?

Managers should not simply interpret a favorable variance as good but should understand why the variance occured

If management experiences an unfavorable direct materials efficiency variance, which of the following would not be the possible corrective action?

Negotiate lower prices for material acquisition

When using the five-step decision process, which one of the following steps should be done first?

Obtain information

Relevant data in a make-or-buy decision of a part include which of the following

Some portion of fixed costs that would be incurred whether the product is made or purchased

Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice. Which of the following statements is correct about relevant costs and relevant revenues?

The only relevant item are the costs as they differ between alternatives

Johnson Company had planned for operating income of $10 million in the master budget with a contribution margin of $3 million, but actually achieved operating income of only $7 million and a contribution margin of $2.5 million.

The static-budget variance for operating income is $3 million unfavorable

Which of the following is a disadvantage of using the standards developed by a firm itself to develop a budget?

They are not based on realized benchmarks and can be unrealistic

Which of the following is not true with regards to relevant costs and relevant revenues?

They are sunk costs and historical revenues

Which of the following is true of historical costs?

They are useful for making future predictions

The best label for (Actual price x Actual quantity) - (Budgeted price x Budgeted quantity) is the

Total flexible- budgeted variance

A cost may be relevant for one decision, but NOT relevant for a different decision

True

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 standard is attainable through efficient operations but allows for normal disruptions such as machine breakdowns and defective production

True

A variance is the difference between the actual cost for the current and expected(or budgeted) performance.

True

A variance within an acceptable range is considered to be an "in-control occurance" and calls for no investigation or action by managers

True

Continuous improvement through the use of standard costs is the process of repeatedly identifying the causes of variances, taking corrective actions, and evaluating results.

True

Expected performance is also called budgeted performance

True

For any actual level of output, the efficiency variance is the difference between actual quantity of input used and the budgeted quantity of input allowed to produce actual output, multiplied by the budgeted price

True

For critical items such as product defects, a small variance may prompt investigation

True

If option 1 costs $120 and Option 2 costs $90, then the differential cost is $30

True

In a one-time special order situation, if the price differed by the buyer is less than the absorption cost per unit, the special order may still be profitable since absorption costs include allocated fixed manufacturing overhead

True

In relevant-cost analysis, managers should not consider all variable as relevant and all fixed costs as irrelevant

True

One-time only special orders should only be accepted if

incremental revenues exceed incremental costs

With a direct materials price variance of $40,000 F and direct materials efficiency, direct manufacturing labor price, and direct labor efficiency variances of $60,000 U, and 15,000 U, the write-off to costs of goods sold if these are deemed immaterial would be a debit of $55,000

True

A favorable variance indicates that

actual revenues exceed budgeted revenues

Which of the following information is needed to prepare a flexible budget?

actual units sold

How to find flexible budget for sales?

actual units sold x projected selling price

When evaluating a make-or-buy decision, which of the following needs to be considered?

alternative uses of the production capacity

An efficiency variance reflects the difference between

an actual input quantity and a budgeted input quantity

An incremental cost is

an additional total cost for an activity

When making decisions

appropriate weight must be given to both quantitative and qualitative factors

Sunk costs

are irrelevant for decision making and ignored when evaluating alternatives

Non-financial performance measures

are usually used in combination with financial measures for control purposes

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

A master budget is

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

The flexible budget contains

budgeted amounts for actual output

Which of the following minimizes the risks of outsourcing?

building close partnerships with the supplier

The formal process of choosing between alternatives is known as a

decision model

When deciding to accept a one-time only special order from a wholesaler, management should

determine whether excess capacity is available

The cost to produce Part A was $20 per unit in 2013 and in 2014 it has increased to $22 per unit. In 2014, Supplier ABC has offered to supply Part A for $18 per unit. For the make-or-buy decision

differential cost are $4 per unit

The degree to which a predetermined objective or target is met is known as

effectiveness

All of the following are examples of quantitative factors except

employee morale

When using the five-step decision process, which one of the following steps should be done last?

evaluation and feedback

Relevant costs are

expected future costs

The best way to avoid misidentification of relevant costs is to focus on

expected future costs that differ among the alternatives

A flexible budget variance can be subdivided into the static-budget variance and the sales-volume variance

false

In a flexible budget

fixed costs are kept at the same level of static budget

Which of the following costs is irrelevant in the decision making of a special order when there is idle production capacity-enough excess capacity to accept the order?

fixed manufacturing costs

Which of the following is a relevant cost to be included in a make-or-buy decision?

fixed salaries that will not be incurred if the part is outsourced

A decision model involves a

formal method of making a choice that often involves both quantitative and qualitative analyses

A relevant cost is a cost that is a

future cost

A relevant revenue is revenue that is a

future revenue and differs among alternative courses of action

Quantitative Factors

include both financial and non-financial information

Which of the following are potential problems managers face in relevant-cost analysis?

incorrect assumptions such as all variable costs are relevant and all fixed costs are not

Which of the following could be a reason for a favorable material price variance?

the purchasing manager bargaining effectively with suppliers

Efficiency is

the relative amount of inputs used to achieve a given output level

Variance analysis should be used

to understand why variances arise and to improve future performance

Which of the following items will be same for a flexible budget and a master budget?

total expected fixed costs

A favorable price variance for direct manufacturing labor might indicate

under skilled employees are being hired

An unfavorable flexible-budget variance for variable costs may be the result of

using more input quantities than were budgeted

Which of the following is an example of sunk costs?

wages to security staffs

Cost variances should be investigated

when the variance is more than certain percentage of budgeted costs, as determined by management

A favorable efficiency variance for direct materials might indicate that

work is scheduled efficiently

An unfavorable efficiency variance for direct manufacturing labor might indicate that

work is scheduled inefficiency