Exam 2

Which of the following are key benefits of decentralization?

Business-unit managers may be more motivated by performance measures. Business units can be more responsive to customers, suppliers, and employees. Senior management is free to focus on organization-level strategic decisions.

Which method is used when equivalent units and unit costs relate only to work done during the current period?

FIFO

Which statement is true regarding a cost driver?

It has a cause-and-effect relationship with the specific cost object.

The product cost accounting system used when discrete products are manufactured is known as a _______ -order costing system.

Job

The product cost accounting system used when discrete products are manufactured is known as a

Job-Costing system

Managers use a predetermined overhead rate for which of the following reasons?

To estimate total job costs before the job is completed. It provides a "fixed standard" of cost.

What is the final step in performance measurement?

To motivate workers, assign rewards and recognition to employees based on their achievement of these performance targets.

What is the technical term for costs moving between one department and the next in a multi-department process?

Transferred-in costs

What is the main difference between transferred-in costs and direct material costs?

Transferred-in costs refer to partially completed products, while direct material costs relate to raw materials.

What is a cost pool?

a collection of costs that are to be allocated to cost objects

A cost allocation base is

a factor or variable that is used to allocate costs in a cost pool to cost objects

In an ABC system, what causes the consumption of overhead resources?

activity

A technique that attempts to assign overhead costs more accurately to products is known as

activity-based costing

A factor or variable that is used to allocate costs in a cost pool to cost objects is called

allocation base

Practical capacity

allows for some downtime

Which of the following are examples of jobs?

an individualized service that is created for a specific customer a specific batch of products

In process costing, production costs are transferred from one process to another

as work is completed

Process costing can

be adapted to reflect production flows that are not totally homogeneous

A cost center incurs expenses

but does not generate revenues

An organizational structure in which decision-making authority is maintained at the top level of management is called a(n) ______ organization.

centralized

Cost-plus pricing is a strategy where the sales price is determined by

charging a certain percentage above the costs

Direct labor and overhead costs incurred to change raw materials into finished products are

conversion

An organizational unit that incurs expenses, but does not generate revenue is called a(n) ______ center

cost

An organizational unit that incurs expenses, but does not generate revenue, is called a(n) ______ center

cost

Direct costs are traced to ______, which are any units or items to which costs are assigned, such as a job, a product, or a customer.

cost objects

What should be used in a process costing environment when there is work in process inventory?

cost per equivalent unit of production

Determining the sales price by marking up the cost is

cost-plus pricing

The FIFO method of calculating costs per equivalent unit is more accurate than the weighted-average method because

current period costs are not combined with prior period costs

Unit-level costs are incurred

each time a company generates one individual item of product

What are equivalent units of production under the weighted-average method?

equivalent units in ending work in process plus units transferred out

The number of completed physical units that are the same in amount as a company's partially completed units is called the

equivalent units of production

When there is work-in-process inventory in a process costing environment, Blank______ should be used to calculate the costs of production for this inventory.

equivalent units of production

A process costing system is used in industries that work on

essentially homogeneous (i.e., uniform) products on a continuous basis

Costs incurred to support an entire company are called

facility-level costs

Information systems that provide the data necessary for strategic decision making are an example of

formal controls

Which of the following are the explicit rules, procedures, safeguards, and incentive plans employed in the organization?

formal controls

Activity cost pools are

group of costs related to the same activity

Costs may be pooled together if they

have a common allocation base

Which of the following companies would most likely use a job-costing system?

home construction company business consulting firm

The major difference between the weighted-average and FIFO methods of calculating equivalent unit costs is

how beginning inventory is treated

Which of the following are the three types of formal controls?

human resource system quality management system cost accounting system

It can be stated that a cost driver typically

increases a cost as its volume increases

Supervisors are included in which type of labor costs?

indirect

The materials that appear in the Manufacturing Overhead section of the statement of cost of goods manufactured are referred to as

indirect

Giving and receiving feedback is an example of which type of control?

informal control

What is the broad term used to refer to a customized order, a specific batch of products, or an individualized product or service that is created for a specific customer?

job

What name is given to a record of all costs that relate to a particular job?

job-cost sheet

Decision-making authority rests at the top in a centralized organization; the vast amount of responsibility for day-to-day procedures is delegated to Blank

low-level employees

Job-order costing is used for

many different products with unique production requirements

Organize the following accounts in the order in which costs flow from one to the other in a process costing system.

raw material work in process finished good cost of good sold

The amount of income earned after the sub-unit has been "charged" to repay the investment made by the organization is called ______ income

residual

The amount of income earned after the sub-unit has been "charged" to repay the investment made by the organization is called ______ income.

residual

What is the operating income that an investment center earns above the minimum required return on its average operating assets?

residual income

What operating income does an investment center earn above the minimum required return on its average operating assets?

residual income

Each sub-unit in an organization can also be described as a(n)

responsibility center

Which of the following refers to the estimated dollar return from each dollar invested?

return on investment

The DuPont method calculates ROI as the product of which two calculations?

return on sales asset turnover

Managers of ____ centers typically are responsible for selling products and generally marketing costs

revenue

Managers of _______ centers typically are responsible for selling products and generally marketing costs

revenue

The appliance department of a large department store is an example of a(n)_____ center.

revenue

In decentralized organizations, decision-making authority is

spread throughout the organization

The predetermined overhead rate is based on which two things?

the allocation (application) base the estimate of the total manufacturing overhead costs for a reporting period

In what ways is FIFO different from the weighted-average method in process costing?

the computation of equivalent units the way in which costs of ending inventory are treated the way in which costs of beginning inventory are treated

What are batch-level costs caused by?

the production or purchase of a group of products that are produced or provided together

What are product-level costs caused by?

the production or purchase of a specific product

transfers between segments within a company occur at a predetermined price known as the

transfer

What is the term for the price one business unit charges another business unit within the same organization for its product or services?

transfer price

Which of the following is most accurate regarding the benefits of decentralization?

A key benefit is that because business-unit managers are responsible for business-unit decisions, senior management can focus on strategic decisions that affect the organization as a whole.

Why do companies use a predetermined overhead rate rather than an actual overhead rate?

An actual overhead rate is not known until the end of the period.

What is the final step in process costing?

Assigning costs to completed and in-process units.

Which of the following statements is true regarding activity-based costing?

Companies that have little variety in production processes or products, or that have few indirect costs, likely have little need for an activity-based costing system.

Which of the following is a characteristic of decentralization?

Decentralization reduces how accountable lower-level managers are for the outcomes of their decisions. Decentralization allows top management to concentrate on bigger issues such as overall strategy. Decentralization helps to train lower-level managers for higher level positions.

Which statement is most accurate regarding tracking product costs?

Declaring bankruptcy is a likely result for a company that does not understand its product costs.

In the weighted-average method, equivalent units of ____ are the number of units transferred to the next department or to finished goods plus equivalent units in ending work in process.

production

Economic value added focuses on the

profit generated during a period

Work-in-process contains costs of inventory items that are

not yet complete

The responsibility centers, products, or services to which costs are assigned are called cost

objects

How is return on investment calculated?

operating income divided by a measure of investment

Time-driven activity-based costing (TDABC)

overcomes some important limitations of ABC does not assume employees will self-report idle time

A company's system has assigned more cost to a good than is accurate when the product is

overcosted

Activity-based costing is most likely to be beneficial when

overhead costs are high and no one knows why products differ substantially in batch size and the activities they require

Economic value added is a measure of which of the following?

performance

The process by which managers at all various levels gain information about the performance of tasks is called

performance measurement

he process of collecting and analyzing information about organizational performance and comparing it to expectations and goals is called

performance measurement

An activity cost ____ is a group of cost that are related to the same activity

pools

An activity cost _____ is a group of costs that are related to the same activity.

pools

The assignment of estimated overhead to a job uses a(n)

predetermined

Which costing system is used in situations where the company produces many units of a single product for long periods at a time?

process costing system

Late deliveries would be tracked in which formal control system?

quality

When overhead is first assigned to intermediate cost pools and then allocated to products using different allocation bases, a(n) ____-____ cost allocation system is used

two stage

When some overhead is related more to machine hours and other overhead is related to labor, using a(n) ___-__ cost allocation system is appropriate

two stage

A company produces bath towels and uses a single-stage allocation system. Under this system, the bath towels are allocated less costs than is accurate, meaning they ar

undercosting

Costs incurred each time a company generates one individual item of product are called

unit-level costs

The______ method combines units and costs from both prior and current periods, while the _____ method includes equivalent units and unit costs for work done during the current period.

weighted average fifo

Inventory costs that relate to products that are not yet complete are shown in

work-in-process inventory