Exam 2

Which of the following is a true statement regarding absorption and/or direct costing?

Absorption costing includes fixed overhead in product costs whereas direct costing does not.

Which of the following is an accurate statement regarding a statement of cash flows?

All material operating, investing, and financing activities are included.

How is performance evaluated for an investment center?

Comparison of actual and budgeted return on investment (ROI) based on segment margin and assets controlled by the segment.

Which of the following accounts/captions are not included in the calculation of Gross Profit?

General and Selling Expenses.

Which of the following statements does not describe a characteristic of management accounting?

Management accounting must conform to GAAP.

As compared to a traditional income statement format, which of the following terms do not appear on the contribution margin format income statement?

Operating expenses.

To which function of management is an understanding of Cost-Volume-Profit relationships most relevant?

Planning.

Another term for return on investment is:

Return on assets.

The major difference between the indirect and the direct method of a statement of cash flows appears in which of the following activities section(s)?

The operating activities section only.

The term transfer price refers to:

The price at which a product or service is sold by one segment to another related segment.

Most entities satisfy the accounting criteria for recognizing an expense when:

a cost is incurred in the revenue generating process.

Most entities satisfy the accounting criteria for recognizing revenue when:

a product is delivered or a service is provided.

Revenue may be recognized: a) if a company trades inventory at its usual selling price for newspaper advertising. b) in 2013 from the sale of subscriptions of a magazine to be published in 2014. c) if management believes the market value of land held for future development has increased during the year. d) from the sale of a company's own common stock.

a) if a company trades inventory at its usual selling price for newspaper advertising.

In order to achieve higher quality cost information from the assignment of overhead costs to products manufactured, the use of a predetermined overhead rate is being replaced by:

activity-based costing.

The use of activity-based costing information to support the decision-making process is known as:

activity-based management.

Management's use of resources can best be evaluated by focusing on measures of:

activity.

An unfavorable materials usage variance would occur if:

actual pounds of materials used was greater than the standard pounds allowed.

The concept of matching revenue and expense refers to the fact that:

all costs incurred in the process of earning revenues during a period are recorded as expenses in that period.

An excess of cost of goods manufactured over cost of goods sold for the period represents:

an increase in finished goods inventory.

The purchasing agent of an organization acquired some raw materials at a bargain price, even though she knew that their quality was lower than that of the materials customarily used. This action resulted in a favorable raw materials purchase price variance that might very well have been more than offset by:

an unfavorable raw materials usage variance.

Gains differ from revenues because gains:

are not a result of the entity's ongoing, central operations.

Cost of Goods Manufactured can be computed as:

beginning balance of work in process + raw materials used + direct labor costs incurred + manufacturing overhead costs applied - ending balance of work in process.

The gross profit ratio is useful to the manager for each of the following purposes except that: a) it can be used to determine the selling price to set for an item. b) it can be used to determine the amount available from a given amount of revenue to cover operating expenses. c) it can be used to estimate the amount of operating expenses for a period. d) it can be used to estimate the amount of inventory lost in a fire.

c) it can be used to estimate the amount of operating expenses for a period.

A cost is considered relevant if: a) if it can't be changed. b) it is positive. c) it makes a difference. d) it is sunk.

c) it makes a difference.

When the periodic inventory system is used:

cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases.

As compared to a traditional income statement format, an income statement organized by cost behavior does not include:

cost of goods sold.

The comparison of activity measures of different companies is complicated by the fact that:

different inventory cost flow assumptions may be used.

The preferred format for a segmented income statement emphasizes:

direct and common fixed costs.

The three components of product costs are:

direct material, direct labor, manufacturing overhead

An example of a cost likely to have an indirect relationship with products being manufactured is: production labor costs. raw material costs. electricity costs for packaging equipment. none of the answers are correct.

electricity costs for packaging equipment.

A variance is calculated to measure the difference between actual costs and:

expected costs.

Absorption costing and direct costing differ in the treatment of:

fixed manufacturing overhead.

If the actual level of activity is different from the budgeted level, a _________ budget is prepared for the actual level of activity:

flexible

A budget adjusted to reflect a budget allowance based on actual activity achieved rather than the planned level of activity in the original budget is a:

flexible budget.

The term noncontrollable cost:

implies that there is really nothing the manager can do to influence the amount of cost.

The price/earnings ratio:

is a measure of the relative expensiveness of a firm's common stock.

Simplifying assumptions identified for the use of cost behavior pattern data include:

linearity and relevant range.

The first caption in most income statements in annual reports is:

net sales.

When an income statement shows data for segments of the organization, and data for each segment are added together to get totals for the whole organization:

only direct revenues and direct expenses should be assigned to segments.

An example of a committed cost is:

property taxes.

When a firm has financial leverage:

risk is greater than if there wasn't any leverage.

Asset turnover calculations:

should be evaluated by observing the turnover trend over a period of time.

In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would be:

subtracted from net income because this means that revenues earned and included within net income were more than the cash collected.

Which of the following qualitative factors favors the buy option in the make or buy decision?

technical expertise of supplier.

Recognition of revenue in accrual accounting requires:

that the revenue be realized or realizable, and earned.

Knowing the behavior pattern of a cost is important to determine the effect on net income of a change in sales volume because as sales volume increases or decreases:

the effect on net income will depend on the behavior pattern of various costs.

The dividend payout ratio describes:

the proportion of earnings paid as dividends.

The term "relevant range" is used to describe:

the range of activity where a particular relationship between fixed and variable costs stays valid.

Under most circumstances, in order to recognize revenue:

the revenue must be realized or realizable, and earned.

A higher P/E ratio means that:

the stock is relatively expensive.

In the statement of cash flows, depreciation and amortization expense is added back to net income because:

these expenses do not affect cash, but were subtracted in the determination of net income.

ABU Co. has several products, each with a different contribution margin ratio. If the same number of units were sold in July as in June, but the sales mix changed:

total contribution margin in July would be different from that in June.

An example of a product cost is:

wages of the production line maintenance staff.