Managerial Accounting Terms

A company's operating leverage is computed as A: Contribution margin divided by income from operations. B: Profit margin divided by net income. C: Revenue divided by expenses. D: None of these choices is correct.

A: Contribution margin divided by income from operations. The relationship between a company's contribution margin and income from operations is measured by operating leverage.

The journal entry to recognize depreciation on machinery would include a A: Debit to Factory Overhead. B: Debit to Accumulated Depreciation. C: Credit to Factory Overhead. D: None of these choices is correct.

A: Debit to Factory Overhead. The entry would include a debit to Factory Overhead and a credit to Accumulated Depreciation.

If a company decides to increase the selling price of its product, what is its effect on the break-even point? A: Decrease B: Increase C: No-effect D: None of these choices is correct.

A: Decrease Increasing the unit selling price will drive the break-even point down.

_____ are identified with and can be traced to a cost object. A: Direct Costs B: Product costs C: Indirect Costs D: None of these choices is correct.

A: Direct costs Direct costs are identified with and can be traced to a cost object. For example, the cost of wood used to make guitars is a direct cost.

Boston Consulting Group (BGG) believes that the use of advanced robotics in manufacturing will A: Drive a 10 to 30 percent increase in manufacturing. B: Drive labor costs up. C: Become less important over time. D: Cause more global plants to be built.

A: Drive a 10 to 30 percent increase in manufacturing.

Which of the following accounts are NOT likely to appear in a job order cost system of a service business? A: Finished Goods B: Work in Process C: Factory Overhead D: None of these choices is correct.

A: Finished Goods A finished goods account and related finished goods ledger are not necessary. This is because the revenues for the services are recorded only after the services are provided.

Which of the following formulas is used to calculate break-even units? A: Fixed Costs ÷ Unit Contribution Margin B: Variable Costs ÷ Contribution Margin Percent C: Variable Costs ÷ Unit Contribution Margin D: Fixed Costs ÷ Contribution Margin Percent

A: Fixed Costs ÷ Unit Contribution Margin The break-even units are computed as fixed costs divided by unit contribution margin.

A __________ cost system provides product costs for each quantity of product that is manufactured. A: Job order B: process C: periodic D: None of these choices is correct.

A: Job order

This is measured by the average proportion of seats filled across all flights. A: Load factor B: CASM C: RASM D: Break-even point

A: Load factor

The __________ is the relative distribution of sales among the products sold by a company. A: Sales mix B: Mixed cost C: Product mix D: None of these choices is correct.

A: Sales mix The sales mix is the relative distribution of sales among the products sold by a company.

The journal entry to record the direct labor costs for the month would include a debit to A: Work in Process. B: Wages Expense. C: Wages Payable. D: Factory Overhead.

A: Work in Process. The entry would debit Work in Process and credit Wages Payable.

The quantity of the material output divided by the quantity of the material input gives you the _____. A: Yield B: Direct materials cost per equivalent unit C: Average cost per unit D: None of these choices are correct.

A: Yield Yield is the ratio of material output quantity to the input quantity.

The cost per megawatt hour is determined by using process costing by A: accumulating the conversion costs. B: dividing the costs by megawatt hours. C: adding the cost of inventory. D: dividing the top part of the power stack into the lowest part.

A: accumulating the conversion costs.

The cost per equivalent unit is determined by dividing the __________ by the __________. A: total production costs; total equivalent units of production B: total equivalent units of production; total production costs C: goods available for sale in dollars; goods available for sale in units D: None of these choices is correct.

A: total production costs; total equivalent units of production The cost per equivalent unit equals total production costs divided by the total equivalent units of production.

Starfish Enterprises produces men's sports coats that are sold by popular department stores. Each retail order is treated as a job that accumulates materials, labor, and overhead costs for a batch of sports coats. Material costs for a selected job are $900 for a batch of 30 suit coats (units). The material cost per unit is ________. A: $27.00 B: $30.00 C: $27.70 D: $26.00

B: $30.00 $900 ÷ 30 units = $30 per unit

Compute the yield as a percentage rounded to two digits after the decimal, assuming 110 pounds of tea entered the Packaging Department and 103 pounds of tea was packaged. A: 1.07% B: 93.64% C: 6.36% D: 95.67%

B: 93.64% 103 ÷ 110 = 0.9363636 rounded to 93.64%

The cost of manufactured products consists of direct materials, direct labor, and factory overhead. The reporting of all these costs in financial statements is called A: Full disclosure. B: Absorption costing. C: Variable costing. D: None of these choices is correct.

B: Absorption costing. Absorption costing income statements show direct materials, direct labor, and factory overhead as part of the cost of goods manufactured. This method is required by GAAP for external reporting purposes.

_____ is the philosophy of continually improving employees, business processes, and products. A: Improvement process B: Continuous process improvement C: Quality process D: None of these choices are correct.

B: Continuous process improvement The objective of continuous process improvement is to eliminate the source of problems in a process.

CASM is the average A: Revenue earned per available seat mile. B: Cost per available seat mile. C: Cash available for seat maintenance. D: Customer availability for seasonal miles.

B: Cost per available seat mile.

The journal entry to record the direct materials used for the month would include a A: Debit to Factory Overhead. B: Credit to Materials. C: Credit to Cost of Goods Sold. D: Credit to Work in Process.

B: Credit to Materials. The entry would debit Work in Process and credit Materials.

The first step in preparing a cost of production report is to _____. A: Compute equivalent units of production B: Determine the units to be assigned costs C: Determine the cost per equivalent unit D: Allocate costs to units transferred out and partially completed units

B: Determine the units to be assigned costs A cost of production report is prepared using the following four steps. Determine the units to be assigned costs; Compute equivalent units of production; Determine the cost per equivalent unit; Allocate costs to units transferred out and partially completed units.

The process by which managers run day-to-day operations is called _____. A: Planning B: Directing C: Controlling D: Executing

B: Directing The process by which managers run day-to-day operations is called directing.

The journal entry to record the transfer from work in process to finished goods would include a debit to A: Work in Process. B: Finished Goods. C: Cost of Goods Sold. D: None of these choices is correct.

B: Finished Goods. The entry would include a debit to Finished Goods and a credit to Work in Process.

Costs that do not change with the change in the level of production for some time is classified as ________. A: Variable costs B: Fixed costs C: Mixed costs D: None of these choices is correct.

B: Fixed costs Fixed costs remain the same in total dollar amount as the activity base changes.

What effect does the increase in fixed costs have on the break-even units? A: Decrease B: Increase C: No-effect D: None of these choices is correct.

B: Increase Increases in fixed costs increase the break-even units.

Inventory that consists of the costs of the direct and indirect materials that have not yet entered the manufacturing process is known as ________. A: Work in process inventory B: Materials inventory C: Finished goods inventory D: None of these choices is correct.

B: Materials inventory Materials inventory, also known as raw materials inventory, includes materials that will be used to make the final product. For example, in the manufacturing of automobiles, steel is classified as materials inventory or raw materials inventory.

Which of the following most likely uses a process cost system? A: Purse manufacturer B: Oil refinery C: Automobile manufacturer D: Guitar manufacturer

B: Oil refinery A process manufacturer produces products that are indistinguishable from each other using a continuous production process.

Which type of chart plots only a profit line rather than sales and cost lines? A: Cost-volume-profit chart B: Profit-volume chart C: Profit-cost chart D: Cost-volume chart

B: Profit-volume chart The profit-volume chart allows managers to determine the operating profit (or loss) for various levels of units sold.

What will be required of the workforce to use robotics? A: To have at least two years of college. B: To learn new skills. C: To work more hours. D: To retire at an earlier age.

B: To learn new skills.

If units sold are less than units manufactured, then A: Variable costing income will greater than absorption costing income. B: Variable costing income will be less than absorption costing income. C: Variable costing income will be equal to absorption costing income. D: None of these choices is correct.

B: Variable costing income will be less than absorption costing income. When more goods are manufactured than sold, a part of the fixed overhead costs that are inventoried under absorption costing is expensed under variable costing. This creates a reduction of variable costing income over absorption costing income.

Under the __________ method, all production costs (materials and conversion costs) are combined together for determining equivalent units and cost per equivalent unit. A: FIFO B: LIFO C: Average cost D: Job order cost

C: Average cost Under the average cost method, the costs of materials and conversion are combined together in determining the cost per equivalent unit.

The total cost of making products that are available for sale during the period is called ________. A: cost of goods sold B: Inventory cost expense C: Cost of goods manufactured D: None of these choices is correct.

C: Cost of goods manufactured Cost of goods manufactured is required to determine the cost of goods sold and, thus, to prepare the income statement. The cost of goods manufactured is often determined by preparing a statement of cost of goods manufactured.

The primary costs for a service business includes ________. A: Materials B: Supplies C: Direct labor D: All of these choices are correct.

C: Direct labor The primary costs for a service business are direct labor and overhead costs.

The difference between contribution margin and income from operations is A: Net income. B: Variable costs. C: Fixed costs. D: None of these choices is correct.

C: Fixed costs. The difference between contribution margin and income from operations is fixed costs. Thus, companies with high fixed costs will normally have high operating leverage.

_____ cannot be identified with or traced to a cost object. A: Direct costs B: Product costs C: Indirect costs D: None of these choices are correct.

C: Indirect costs Indirect costs cannot be identified with or traced to a cost object

Which is not a factory overhead cost? A: Cost of heating and lighting the factory. B: Property taxes on the building and land. C: Materials costs for the finished product. D: Insurance on the factory buildings.

C: Materials costs for the finished product.

Costs that have characteristics of both a variable cost and a fixed cost are classified as ________. A: Variable costs B: Fixed costs C: Mixed costs D: None of these choices is correct.

C: Mixed costs Mixed costs have characteristics of both a variable cost and a fixed cost.

RASM is the average A: Miles logged. B: Runway area in miles. C: Revenue earned per available seat mile. D: Cost per available seat mile.

C: Revenue earned per available seat mile.

Contribution margin equals A: Sales minus fixed costs. B: Sales minus mixed costs. C: Sales minus variable costs. D: None of these choices is correct.

C: Sales minus variable costs. Contribution margin is the excess of sales over variable costs.

The unit selling price of the overall enterprise product equals the A: Average selling price of the products. B: Price of the highest-selling product in the mix. C: Sum of the unit selling prices of each product multiplied by its sales mix percentage. D: price of the product with the lowest selling price.

C: Sum of the unit selling prices of each product multiplied by its sales mix percentage. The unit selling price of the overall enterprise product equals the sum of the unit selling prices of each product multiplied by its sales mix percentage.

When can process costing be used in service businesses? A: When the inventory is similar. B: When the power stack is also used. C: Where the nature of the service is uniform across all units. D: At the accountant's discretion.

C: Where the nature of the service is uniform across all units.

Inventory that consists of the direct materials, direct labor, and factory overhead costs for products that have entered the manufacturing process but are not yet completed is known as ________. A: Materials inventory B: Finished goods inventory C: Work in process inventory D: None of these choices is correct.

C: Work in process inventory Work in process inventory consists of the direct materials, direct labor, and factory overhead costs for products that have entered the manufacturing process but are not yet completed (in process). For example, the raw materials on the assembly line would be considered work in process inventory.

A management approach that focuses on reducing time and cost and eliminating poor quality is known as ________. A: Kaizen B: traditional manufacturing C: lean manufacturing D: benchmark

C: lean manufacturing Lean manufacturing is a management approach that produces products with high quality, low cost, fast response, and immediate availability. Lean manufacturing obtains efficiencies and flexibility by reorganizing the traditional production process.

In a just-in-time system, processing functions are combined into work centers that are also known as ________. A: assembly line B: department C: manufacturing cell D: None of these choices is correct.

C: manufacturing cell A work center in a JIT system is also known as a manufacturing cell.

Process and job order cost systems are similar in that each system A: Records and summarizes product costs. B: Classifies product costs as direct materials, direct labor, and factory overhead. C: Allocates factory overhead costs to products. D: All of these choices are correct.

D: All of these choices are correct. Both systems accumulate product costs; categorize manufacturing costs into direct materials, direct labor, and factory overhead; and allocate factory overhead costs to products.

The last step in preparing a cost of production report is to _____. A: Compute equivalent units of production B: Determine the units to be assigned costs C: Determine the cost per equivalent unit D: Allocate costs to units transferred out and partially completed units

D: Allocate costs to units transferred out and partially completed units A cost of production report is prepared using the following four steps. Determine the units to be assigned costs; Compute equivalent units of production; Determine the cost per equivalent unit; Allocate costs to units transferred out and partially completed units.

Airlines measure revenues and cost by A: Fuel used. B: Number of passengers per flight. C: Miles logged. D: Available seat miles.

D: Available seat miles.

Why are factory overhead costs greater for defense contractors than they are for computer manufacturers? A: They manufacture products for the government, which pays higher rates than products manufactured for consumers. B: Large defense contractors are allowed to include direct costs in their factor overhead costs. C: The U.S. General Accounting Office computers government contracts differently than those of non-government contractors. D: Building large products (airplanes, ships, military equipment) that defense contractors supply requires a significant investment in facilities and tools.

D: Building large products (airplanes, ships, military equipment) that defense contractors supply requires a significant investment in facilities and tools.

The journal entry to apply overhead for the month would include a A: Debit to Materials. B: Debit to Cost of Goods Sold. C: Credit to Work in Process. D: Credit to Factory Overhead.

D: Credit to Factory Overhead. The entry would debit Work in Process and credit Factory Overhead.

All of the following are considered phases of the management process except _____. A: Planning B: Directing C: Controlling D: Executing

D: Executing The five phases of the management process are planning, directing, controlling, improving, and decision making.

Under variable costing, the cost of goods manufactured consists of all except A: Direct materials. B: Direct labor. C: Variable factory overhead. D: Fixed factory overhead.

D: Fixed factory overhead. Under variable costing, fixed factory overhead is treated as a period expense.

All of the following are ways cost-volume-profit analysis may be used except A: analyzing the effects of changes in costs on profits. B: analyzing the effects of changes in volume on profits. C: setting selling prices. D: None of these choices is correct.

D: None of these choices are correct. All of these are ways that cost-volume-profit analysis may be used.

_____ consist of selling and administrative costs. A: Direct costs B: Product costs C: Indirect costs D: Period costs

D: Period costs Period costs consist of selling and administrative costs.

What do electric companies, such as Duke Energy Corporation, use to match power supply to demand? A: Energy generator B: Electrical pyramid C: Megawatt hours D: Power Stack

D: Power Stack

Starfish Enterprises management has obtained data on the material costs for a selected job which used 300 feet of materials, while estimates for the job required only 260 feet of materials. The materials price per unit was the same. Which is not a reason for the difference in material usage? A: A new employee worked on the job. B: The material used was of poor quality. C: The cutting tools were in need of repair. D: The cost of materials increased from the time of the estimate.

D: The cost of materials increased from the time of the estimate. Possible explanations include that a new employee worked on the job, the material used was of poor quality, the cutting tools were in need of repair, the operators were careless, or the initial job instructions were incorrect, causing waste. The cost of materials matched the estimate. A price difference is not a reason for a material usage variance.

Which of the following is NOT a primary assumption in a cost-volume-profit analysis? A: Total sales and total costs can be represented by straight lines. B: Within the relevant range of operating activity, the efficiency of operations does not change. C: Costs can be divided into fixed and variable components. D: There is a change in the inventory quantities during the period.

D: There is a change in the inventory quantities during the period. There is an assumption that there is no change in the inventory quantities during the period.

The two main types of cost accounting systems for manufacturing businesses are the __________ cost system and the __________ cost system. A: perpetual; process B: periodic; perpetual C: perpetual; job order D: process; job order

D: process; job order

True/False: Eco-efficiency measures are a form of managerial accounting information that helps managers evaluate the expenses incurred while using fewer natural resources in a company's operation.

False Eco-efficiency measures are a form of managerial accounting information that helps managers evaluate the savings generated by using fewer natural resources in a company's operations.

True/False: Sustainability is the practice of operating a business to maximize profits while attempting to preserve the environment, economy, and needs of future generations.

True Sustainability is the practice of operating a business to maximize profits while attempting to preserve the environment, economy, and needs of future generations.