Exam 2 (Chapters 4,5,6)

ABC Manufacturing Inc. ends the month with two jobs still in progress. Job 5 has​ $10,000 of​ materials, $2,000 of direct labor and​ $8,000 of manufacturing overhead allocated. Job 6 has​ $30,000 of​ materials, $2,000 of direct labor and​ $12,000 of manufacturing overhead allocated. The cost of goods sold for the month was​ $40,000 and there was no finished goods in stock as the month ended. If the manufacturing overhead was under-allocated by​ $10,000, which of the following choices would be the correct way to prorate it based on ending balances before​ proration? (Round any allocation percentages to one decimal​ place, X.X%.) A. ​$6,150 of the under-allocated manufacturing overhead should be allocated to​ work-in-process B. The entire​ $10,000 of under-allocated manufacturing overhead should be added to operating expenses for the month C. ​$6,150 of the under-allocated manufacturing overhead should be split between Job 6 and cost of goods sold D. The entire​ $10,000 of under-allocated manufacturing overhead should be allocated to cost of goods sold

A. ​$6,150 of the under-allocated manufacturing overhead should be allocated to​ work-in-process

Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is​ $68,750. The budgeted number of nozzles to be inserted is​ 11,000. What is the budgeted indirect cost allocation rate for this​ activity? A. ​$6.25 B. ​$0.32 C. ​$1.16 D. ​$0.16

A. ​$6.25

Which of the following statements is true of a peanut−butter costing​ system? A. In a peanut−butter costing​ system, costs of activities are used to assign costs to other cost objects such as products or services based on the activities the products or services consume. B. A peanut−butter costing system broadly averages or spreads the cost of resources uniformly to cost objects. C. A peanut−butter costing system assumes that all costs are variable. D. A peanut−butter costing system typically has more−homogeneous indirect cost pools.

B. A peanut−butter costing system broadly averages or spreads the cost of resources uniformly to cost objects.

Which of the following statements is true of ABC​ systems? A. ABC systems classify some direct costs as indirect costs and some indirect costs as direct costs. B. ABC systems provide valuable information to managers beyond accurate product costs. C. ABC systems assume all costs are variable costs. D. ABC systems are time−driven cost systems.

B. ABC systems provide valuable information to managers beyond accurate product costs.

A manufacturer utilizes three separate indirect cost pools. Which of the following is​ true? A. Each indirect cost pool is a subset of total direct costs B. Each indirect cost pool utilizes a separate​ cost-allocation rate C. Each indirect cost pool relates to multiple cost centers D. Each indirect cost pool utilizes the same​ cost-allocation rate for all costs incurred

B. Each indirect cost pool utilizes a separate​ cost-allocation rate

​________ costs support the organization as a whole. A. Batch-level B. Facility-sustaining C. Unit−level D. Product−sustaining

B. Facility-sustaining

Which of the following best describes a rolling​ budget? A. It is a budget that is submitted to a bank at the beginning of every month as per a loan covenant. B. It is created continually by adding a​ month, quarter, or year to the period just ended C. It is a budget that outlines budgeted expenses while utilizing a moving average D. It is a budget that continually outlines the amount required to roll over debt in a future period.

B. It is created continually by adding a​ month, quarter, or year to the period just ended

Which of the following differentiates job costing from process​ costing? A. Job costing is used when each unit of output is identical and not produced in​ batches, and process costing deals with unique products produced on large scale. B. Process costing is used when each unit of output is​ identical, and job costing deals with unique products not produced in batches. C. Job costing is used when each unit of output is​ identical, and process costing deals with unique products. D. Job costing is used by manufacturing​ industries, and process costing is used by service industries.

B. Process costing is used when each unit of output is​ identical, and job costing deals with unique products not produced in batches.

Which of the following statements is true about responsibility accounting​ statements? A. Responsibility accounting excludes controllable costs. B. Responsibility accounting segregates uncontrollable costs from controllable costs. C. Responsibility accounting excludes fixed costs and variable costs. D. Responsibility accounting segregates fixed costs and variable costs.

B. Responsibility accounting segregates uncontrollable costs from controllable costs.

Process costing​ ________. A. results in different costs for different units produced B. allocates all product​ costs, including​ materials, and labor C. is used exclusively in manufacturing D. is commonly used by general contractors who construct​ custom-built homes

B. allocates all product​ costs, including​ materials, and labor

ERP systems store vast quantities of information about the​ materials, machines and​ equipment, labor,​ power, maintenance, and setups needed to manufacture different products. This helps simplify the budgeting process as ERP systems​ ________. A. automatically identify and record changes in processes involved in producing products B. can quickly calculate the manufacturing and non-manufacturing costs based on a given sales quantity C. identify which underlying assumptions are likely to change D. always use a rolling budget ensuring that a budget is always available for a specified future period

B. can quickly calculate the manufacturing and non-manufacturing costs based on a given sales quantity

Refining a cost system involves which of the​ following? A. creating as many cost pools as possible to capture all costs B. identifying the activities involved in a process and understanding how those activities consume resources C. classifying as many costs as indirect costs as is feasible D. Seeking an easier and more cost effective way to calculate average costs

B. identifying the activities involved in a process and understanding how those activities consume resources

Kaizen refers to incorporating cost reductions​ ________. A. in all areas of the organization B. in each successive budgeting period C. in all customer service centers D. in each successive sales forecast

B. in each successive budgeting period

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

B. its benefits exceed its implementation costs

One of the benefits of a well implemented and executed budget is communication. Which of the following best describes communication within the budgetary​ cycle? A. meshing and balancing of all aspects of production or service B. making each manager aware of the plan and allowing each manager to understand the importance of the plan C. the calculation of deviations from plan D. allocation of scarce resources across all functional areas of the company

B. making each manager aware of the plan and allowing each manager to understand the importance of the plan

Job costing​ ________. A. is used when each unit of output is identical B. records the flow of costs for each product or service C. cannot be used by the service industry D. allocates an equal amount of cost to each unit made during a time period

B. records the flow of costs for each product or service

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

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

One reason for assigning selling and distribution costs to products for analytical purposes is​ ________. A. to justify a varied product−mix B. to ensure that all costs are considered C. that these costs should be included in the cost of goods sold in the income statement D. that all direct costs must be assigned

B. to ensure that all costs are considered

When​ $10,0000 direct materials are​ requisitioned, which of the following would be the correct journal​ entry? A. Accounts Payable Control $10,000 Materials Control $10,000 B. ​Work-in-Process Control $10,000 Materials Control $10,000 C. Manufacturing Overhead Control ​$10,000 Materials Control $10,000 D. Materials Control $10,000 ​ Work-in-Process Control $10,000

B. ​Work-in-Process Control $10,000 Materials Control $10,000

When using a normal costing​ system, manufacturing overhead is allocated using the​ ________ manufacturing overhead rate and the​ ________ quantity of the allocation base. A. ​actual; budgeted B. ​budgeted; actual C. ​budgeted; budgeted D. ​actual; actual

B. ​budgeted; actual

Which of the following statements about ABC is not​ true? A. Although implementation of ABC can be a refinement of a cost​ system, it has its limitations B. ABC may empower employees to also implement cost saving projects C. ABC should be implemented solely by the accountants as they are the guardians of the accounting information system D. A byproduct of ABC implementation can improve the efficiency of operations

C. ABC should be implemented solely by the accountants as they are the guardians of the accounting information system

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. A. DACB B. DBCA C. CDAB D. BADC

C. CDAB

The fundamental cost objects of ABC are​ _________. A. services B. cost drivers C. activities D. products

C. activities

Which of the following items is debited to the​ Work-in-Process account? A. accumulated depreciation on fixed assets B. accounts receivable C. allocated manufacturing overhead D. completed goods transferred out of the plant

C. allocated manufacturing overhead

Sensitivity analysis helps managers evaluate risks​ ________. A. by identifying gaps in the production process using information on setups needed to manufacture products B. by removing the effects of foreign currency exposure and other uncontrollable factors C. by showing the effects of changes to the original data or an underlying assumption D. by identifying inconsistencies in underlying assumptions and actual conditions

C. by showing the effects of changes to the original data or an underlying assumption

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

C. competition in product markets

In a​ job-costing system, a manufacturing firm typically uses an​ indirect-cost rate to estimate the​ ________ allocated to a job. A. direct labor B. total costs C. manufacturing overhead costs D. direct materials

C. manufacturing overhead costs

To prepare the direct materials labor costs​ budget, which of the following budget must be prepared​ first? A. direct material usage budget B. direct material purchase budget C. production budget D. budgeted manufacturing overhead

C. production budget

The major objectives of a budgeting process should include all of the following​ EXCEPT: A. providing communication among the sub-units B. providing a framework for judging performance and facilitating learning C. providing unyielding commitment to targets as a means to achieve a target profit D. providing coordination among the sub-units

C. providing unyielding commitment to targets as a means to achieve a target profit

A stretch budget is a budget that​ ________. A. crosses more than one responsibility center B. is impossible to implement in a cost center C. represents a​ challenging, but achievable level of performance D. is designed to include the effects of exchange rate fluctuations

C. represents a​ challenging, but achievable level of performance

The preparation of all the budgets in the master budget forces managers to think about their business operations and to formulate​ plans, while: A. ignoring financial risks and opportunities B. completing the budgeting tasks with minimal cross functional feedback C. setting expectations against which actual results can be compared D. detecting inaccurate historical records to avoid errors in budgets

C. setting expectations against which actual results can be compared

Which of the following are reasons for using longer​ periods, such as a​ year, to calculate indirect cost​ rates? A. longer the​ period, the greater is the influence of seasonal patterns on the amount of costs B. shorter the​ period, the smaller is the influence of seasonal patterns on the amount of opportunity costs C. shorter the​ period, the greater is the influence of seasonal patterns on the amount of costs D. longer the​ period, the smaller is the influence of seasonal patterns on the amount of opportunity costs

C. shorter the​ period, the greater is the influence of seasonal patterns on the amount of costs

A primary consideration in assigning a cost to a responsibility center is​ ________. A. whether the cost is direct or indirect B. where in the organizational structure the cost was incurred C. who can best control the change in that cost D. whether the cost is fixed or variable

C. who can best control the change in that cost

Which of the following is the basic formula of the direct materials usage​ budget? A. units used in production​ + target beginning inventory minus− ending inventory​ = purchases to be made for the budget period B. units used in production​ + target ending inventory minus− beginning inventory​ = purchases to be made for the budget period C. Ending inventory of direct materials​ + direct materials purchased and used during the period​ = direct materials to be used this period D. Beginning inventory of direct materials​ + direct materials purchased and used during the period​ = direct materials to be used this period

D. Beginning inventory of direct materials​ + direct materials purchased and used during the period​ = direct materials to be used this period

Place the following steps in the order suggested by the seven steps used to assign costs to individual​ jobs: A. Identify indirect costs B. Compute the total cost of the job C. Select​ cost-allocation bases D. Compute the indirect cost rate A. BACD B. ACDB C. DCAB D. CADB

D. CADB

​________ include a budgeted statement of cash flows and a budgeted balance sheet. A. Revenue budgets B. Operating budgets C. Production budgets D. Financial budgets

D. Financial budgets

Which of the following is true of responsibility​ accounting? A. It is an arrangement of lines of responsibility and authority within a responsibility center. B. It explicitly incorporates continuous improvement and changes due to learning curve. C. It examines how a result will change if the original plan is not achieved. D. It is a system that measures the​ plans, budgets,​ actions, and actual results of a responsibility center.

D. It is a system that measures the​ plans, budgets,​ actions, and actual results of a responsibility center.

The goal of a properly constructed ABC system is to​ ________. A. have separate allocation rates for each department B. have the most accurate cost system C. identify more indirect costs D. develop the best cost system that meets the​ cost/benefit test

D. develop the best cost system that meets the​ cost/benefit test

Activity−based budgeting​ ________. A. uses only output−based cost drivers such as units sold B. classifies costs by functional area within the value chain C. uses one cost driver such as direct labor−hours D. focuses on activities necessary to produce and sell products and services

D. focuses on activities necessary to produce and sell products and services

An example of a denominator reason for calculating annual​ indirect-cost rates includes​ ________. A. budgeted annual indirect costs divided by actual quantity of​ cost-allocation base B. prepaid rent in January for the months January through June C. ​semi-annual insurance payments in March and September D. higher levels of output demanded during the fall months

D. higher levels of output demanded during the fall months

The sales forecast should be primarily based on​ ________. A. statistical analysis B. input from the board of directors C. production capacity D. input from sales managers and sales representatives

D. input from sales managers and sales representatives

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

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

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. A. product−design B. product−mix C. pricing D. process−improvement

D. process−improvement

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that​ ________. A. there is high likelihood of cross−subsidizing of product costs B. total costs reflect market price C. value−added costs can be eliminated D. product−pricing errors are minimal

D. product−pricing errors are minimal

If​ indirect-cost rates are calculated​ monthly, distortions might occur because of​ ________. A. rental costs paid monthly B. salary hikes at the beginning of the financial year C. routine monthly​ preventive-maintenance costs that benefit future months D. property tax payments made in July and December

D. property tax payments made in July and December

The spreading of under-allocated or over-allocated overhead among ending​ work-in-process, finished​ goods, and cost of goods sold is called​ ________. A. the​ write-off of cost of goods sold approach B. the​ weighted-average cost approach C. the adjusted allocation rate approach D. the proration approach

D. the proration approach

The budgeting process is most strongly influenced by​ ________. A. the budgeted statement of cash flows B. the production budget C. the capital budget D. the sales forecast

D. the sales forecast

​________ is used to record and accumulate all the costs assigned to a specific job. A. ​Materials-requisition record B. ​Labor-requisition record C. ​Cost-allocation base D. ​Job-cost record

D. ​Job-cost record

Which account is credited if direct materials of $27,000 and indirect materials of $10,000 are sent to the manufacturing plant​ floor? A. Materials Control for $37,000 B. Accounts Payable Control for $17,000 C. Manufacturing Overhead Control for $37,000 D. Work−in−Process Control for $37,000

Materials Control for $37,000

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 helps make financial reporting more accurate C. It allows for more accurate cost accounting for inventory D. It promotes more accurate cost of goods sold reporting

A. A significant portion of the cost structure of a service firm is composed of indirect costs

Which of the following statements is true of ABC​ systems? A. ABC systems are used by managers for strategic decisions rather than for inventory valuation in merchandising companies. B. Service companies find great value from ABC because a vast majority of their cost structure is composed of direct costs. C. ABC systems provide less insight than traditional systems into the management of the indirect costs. D. ABC systems is valuable for pricing decisions but not for​ understanding, managing, and reducing costs in government institutions

A. ABC systems are used by managers for strategic decisions rather than for inventory valuation in merchandising companies.

Which of the following statements is true of activity−based ​costing? A. Activity-based costing is more suited to companies with high product diversity than companies with a single product line. B. Activity-based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services. C. In activity−based ​costing, direct labor−hours is always the best allocation base to allocate all non−manufacturing indirect costs. D. The main advantage of activity−based costing over peanut−butter costing is the accurate distribution of all direct costs to the products.

A. Activity based costing is more suited to companies with high product diversity than companies with a single product line.

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? A. Aqua will over-cost​ Alpha's indirect costs as it is using a single cost pool to allocate indirect costs. B. Aqua will under-cost​ Alpha's indirect costs because alpha has high direct costs. C. Aqua will over-cost​ Beta's direct costs as it is using a single cost pool to allocate indirect costs. D. Aqua will over-cost​ Beta's indirect costs because beta has high indirect costs.

A. Aqua will over-cost​ 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? A. Batch−level costs B. Output−level costs C. Service−sustaining costs D. Product−sustaining costs

A. Batch−level costs

Which of the following best describes a bill of materials​? A. It is a document that identifies how each product is​ manufactured, specifying materials and components and the quantities of materials in each finished good B. It is a document that requests materials be removed from the warehouse and put into production C. It is a document that is used to order materials D. It is a document that is prepared by a vendor to invoice a manufacturer for a purchase of materials

A. It is a document that identifies how each product is​ manufactured, specifying materials and components and the quantities of materials in each finished good

Actual​ (rather than​ allocated) manufacturing overhead costs are first recorded in the​ ________. A. Manufacturing Overhead Control account B. Finished Goods Control account C. ​Work-in-Process Control account D. Cost of Goods Sold account

A. Manufacturing Overhead Control account

In the service sector​ ________. A. a budgeted​ direct-labor cost rate may be used to apply direct labor to jobs B. direct labor costs are always easy to trace to jobs C. normal costing may not be used D. overhead is generally applied using an actual​ cost-allocation rate

A. a budgeted​ direct-labor cost rate may be used to apply direct labor to jobs

Financial planning​ models: A. are mathematical representations of the relationships among factors such as operating and financing activities that affect the budget B. allow for analysis of changes in predicted data but not the other underlying assumptions of the budget C. are not part of sensitivity analysis D. are primarily used to evaluate the differences between actual and planned volume

A. are mathematical representations of the relationships among factors such as operating and financing activities that affect the budget

Allocating indirect costs to departments based on the relative revenue earned by those departments is done based on which of the following​ criterion? A. benefits received B. direct hours utilized C. ​cause-and-effect relationships D. material resources used

A. benefits received

The operating budget process generally concludes with the preparation of the​ ________. A. budgeted income statement B. balance sheet C. cash flow statement D. production budget

A. budgeted income statement

A limitation of using past performance as a basis for judging actual results is that​ ________. A. future conditions can be different from the past B. they tend to distort results when current and past conditions are similar C. any undervaluation of profits in the past period is likely to continue D. any subsequent change in accounting treatment will distort performance evaluation

A. future conditions can be different from the past

The advantage of using normal costing instead of actual costing is​ ________. A. indirect costs are assigned to a job on a timely basis B. the job cost is more accurate under normal costing C. indirect costs are assigned at the end of the year when they are known D. normal costing provides a higher gross profit margin

A. indirect costs are assigned to a job on a timely basis

A regional manager of a restaurant chain in charge of finding additional locations for expansion is most likely responsible for​ a(n) ________. A. investment center B. revenue center C. profit center D. cost center

A. investment center

In a normal costing​ system, the Manufacturing Overhead Control account​ ________. A. is debited with actual overhead costs B. is increased by allocated manufacturing overhead C. is decreased by allocated manufacturing overhead D. is credited with amounts transferred to​ Work-in-Process

A. is debited with actual overhead costs

Which of the following is referred to as the bottom−up aspect of the budgeting​ process? A. lower−level managers providing inputs to the budgeting process based on their specialized knowledge and familiarity of the operation B. senior managers consulting middle− and lower−level managers to investigate any deviations from the budget C. lower−level managers setting their individual targets that aggregate to be the company−wide target D. lower−level managers implementing the budgets with senior managers monitoring progress and investigating deviations

A. lower−level managers providing inputs to the budgeting process based on their specialized knowledge and familiarity of the operation

Budgets should​ ________. A. not be so rigid that if conditions​ change, adjustments in spending can be made B. only be developed for short periods of time such as quarters C. be administered rigidly D. include only variable costs

A. not be so rigid that if conditions​ change, adjustments in spending can be made

The order to follow when preparing the operating budget is​ ________. A. revenues​ budget, production​ budget, direct manufacturing labor costs budget​ , and cost of goods sold B. cash expenditures​ budget, revenues​ budget, and production budget C. revenues​ budget, manufacturing overhead costs​ budget, and production budget D. revenues costs of goods sold​ budget, production​ budget, and cash budget

A. revenues​ budget, production​ budget, direct manufacturing labor costs budget​ , and cost of goods sold

Operating decisions primarily deal with​ ________. A. the best use of scarce resources B. how to obtain funds to acquire resources C. satisfying stockholders D. acquiring equipment and buildings

A. the best use of scarce resources

The revenues budget reveals A. the expected level of unit sales multiplied by expected unit selling prices for company products B. expected cash flows for each product C. the variance of sales from actual for each product D. actual unit sales from last year multiplied by the budget​ period's expected selling prices for each product

A. the expected level of unit sales multiplied by expected unit selling prices for company products

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

A. there are several homogeneous cost pools

Management accountants use the cost hierarchy to first calculate the​ ________. A. total costs of each product and then they compute per−unit costs B. overhead costs of each product and then they compute prime costs C. labor costs of each product and then they compute material costs D. factory costs of each product and then they compute labor costs

A. total costs of each product and then they compute per−unit costs