309 ch 7,8,9,12

T/F: The level 3 components for the fixed overhead variance are the fixed overhead spending variance and the fixed overhead production volume variance.

False

T/F: The objective of the Theory of Constraints is to increase throughput margin while increasing investment in plant and equipment

False

T/F: 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

T/F: The production volume variance arises only for variable overhead costs

False

T/F: The production-volume variance only exists under variable costing and not under absorption costing.

False

T/F: The theory of constraints is more useful for the long-run management of costs since it takes a long-run perspective and focuses on improving processes by eliminating non-value-added activities and reducing the costs of performing value-added activities

False

T/F: Theoretical capacity is most often used to cost a product

False

T/F: Throughput costing considers only direct materials and direct manufacturing labor to be truly variable costs.

False

T/F: Throughput costing results in a higher amount of manufacturing costs being placed in inventory than either variable or absorption costing.

False

T/F: Throughput margin equals revenues minus all product costs.

False

T/F: Throughput margin is equal to revenues minus direct materials and direct labor of the cost of goods sold

False

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

False

T/F: Under absorption costing, managers can increase operating income by holding less inventories at the end of the period.

False

T/F: When preparing a flexible budget, fixed costs must be adjusted to reflect actual costs at actual output.

False

T/F: When replacing an old machine with a new machine, the book value of the old machine is a relevant cost.

False

T/F: When the unit level of inventory decreases during an accounting period, operating income is lower under variable costing than absorption costing.

False

T/F: When there is a constraining resource, a firm should attempt to maximize sales of the product or service with the greatest contribution margin per unit

False

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

The amount reported for fixed overhead on the static budget is also reported ____

as flexible budget costs

Most of the decisions determining the level of fixed overhead costs to be incurred will be made ______

at the start of a budget period

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

Nonfinancial performance measures ______

are usually used in combination with financial measures for control purpose

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

False

T/F: A favorable production-volume variance arises when manufacturing capacity planned for is NOT used.

False

T/F: A favorable variance can be automatically interpreted as "good news."

False

T/F: A favorable variance indicates that budgeted costs are less than actual costs

False

T/F: A favorable variance should be ignored by management.

False

T/F: 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 product cost is composed of the following: Direct materials $11 Direct labor $3 Manufacturing overhead $8 The product sells for $40 and a 15% commission is paid to a salesperson for every unit sold. Management accountants also estimate that storage cost per unit averages $0.75 per unit. What is the full cost of the product

$11+3+8+(40*15%)+0.75= $28.7

Dantley's Furniture manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $190 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Back Forrest's policy to add a 45% markup to full costs. Dantley's Furniture is invited to bid on a one-time-only special order to supply 180 rustic tables. What is the lowest price Dantley's Furniture should bid on this special order

$190 × 80% × 180 tables = $27,360

Direct materials are $600, direct labor is $450, variable overhead costs are $650, and fixed overhead costs are $400. The cost of one unit is _____

$2,100

Dantley's Furniture manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $240 per table, consisting of 75% variable costs and 25% fixed costs. The company has surplus capacity available. It is Back Forrest's policy to add a 45% markup to full costs. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Dantley's Furniture Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Dantley's Furniture should bid on this long-term order?

$240 + ($240 × 45%) = $348

A study by a consultant shows that a company that had $2,000,000 of inventory was holding excess inventory of $320,000 that could be eliminated with a few process improvements. It also has $620,000 in marketable securities that yield 5% per year. What is the estimated annual opportunity cost of holding the excess inventory

$320,000 x 5% = $16,000

A recent college graduate has the choice of buying a new car for $33,500 or investing the money for four years with an 11% expected annual rate of return. He has an investment of $41,000 in equities and bonds which yields 8% expected annual rate of return. If the graduate decides to purchase the car, the best estimate of the opportunity cost of that decision is ______

$33,500 × 11% × 4 years = $14,740

When deciding to lease a new cutting machine or continue using the old machine, the irrelevant cost is _____

$50,000, cost of the old machine

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

Jalbert Incorporated planned to use materials of $11 per unit but actually used materials of $13 per unit, and planned to make 1,590 units but actually made 1,780 units. The flexible-budget variance for materials is ______

($13 − $11) × 1,780 = $3,560 U

Goodard Inc. planned to use $156 of material per unit but actually used $141 of material per unit, and planned to make 1,150 units but actually made 920 units. The flexible-budget variance for materials is ____

($141 − $156) × 920 = $13,800

Better Products Inc. planned to use $36 of material per unit but actually used $34 of material per unit, and planned to make 1,520 units but actually made 1,310 units. The flexible-budget variance for materials is _____

($34 − $36) × 1,310 = $2,620 F

T/F: A flexible-budget variance can be subdivided into the static-budget variance and the sales-volume variance.

False

Goodard Inc. planned to use $155 of material per unit but actually used $147 of material per unit, and planned to make 1,110 units but actually made 1,000 units. The sales-volume variance for materials is _____

(1,000 − 1,110) × $155 = $17,050 U

Better Products Inc. planned to use $40 of material per unit but actually used $30 of material per unit, and planned to make 1,560 units but actually made 1,310 units. The sales-volume variance for materials is ________

(1,310 − 1,560) × $40 = $10,000 F

Jalbert Incorporated planned to use materials of $9 per unit but actually used materials of $14 per unit, and planned to make 1,640 units but actually made 1,770 units. The sales-volume variance for materials is ________

(1,770 − 1,640) × $9 = $1,170 F

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

T/F: A flexible-budget variance pertaining to revenues is often called a sales-volume variance.

False

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

False

T/F: A sunk cost is a relevant cost in a decision making

False

T/F: Absorption costing "absorbs" only fixed manufacturing costs.

False

T/F: Activity based costing (ABC) systems are less useful than the theory of constraints (TOC) for long-run pricing, cost control, and capacity management

False

T/F: An incremental cost is the difference in total irrelevant costs between two alternatives

False

T/F: An incremental product cost is generally a fixed cost

False

T/F: An unfavorable price variance for materials-handling labor indicates that the actual cost per materials- handling labor-hour is less than the budgeted cost per materials-handling labor-hour.

False

T/F: An unfavorable production-volume variance indicates an overallocation of fixed overhead costs.

False

T/F: An unfavorable variance is conclusive evidence of poor performance.

False

Book value is defined as the ____

difference between the original cost of an asset and the accumulated depreciation

J.C Coats Inc. carefully develops standards for its coat making operation. Its specifications call for 2 square yards of wool per coat. The budgeted price of wool is $44 per square yard. The actual price for the wool was $36 and the usage was only 1.70 yards of wool per coat. What would be the standard cost per output for the wool?

44 × $1.70 = $74.8

Goodard Inc. planned to use $153 of material per unit but actually used $140 of material per unit, and planned to make 1,100 units but actually made 940 units. The flexible-budget amount for materials is _______

940 units × $153 = $143,820

Better Products Inc. planned to use $43 of material per unit but actually used $32 of material per unit, and planned to make 1,510 units but actually made 1,340 units. The flexible-budget amount for materials is _____

1,340 units × $43 = $57,62

Jalbert Incorporated planned to use materials of $11 per unit but actually used materials of $15 per unit, and planned to make 1,560 units but actually made 1,730 units. The flexible-budget amount for materials is ______

1,730 units × $11 = $19,030

A company budgets 10,000 units of sales based on a projected selling price of $13.00. The actual units sold were 15,000 at a price of $10. What is the flexible budget for sales?

15,000 x $13= $195,000

Sunk costs are irrelevant

for decision making

_______ method(s) is required for tax reporting purposes.

Absorption costing

________ method(s) include(s) fixed manufacturing overhead costs as inventoriable costs

Absorption costing

Which of the following is the correct mathematical expression to calculate the fixed overhead spending variance?

Actual costs incurred — Flexible-budget amount

All of the following are possible causes of actual machine hours exceeding budgeted machine hours except

Actual leasing costs for the machine were higher than expected

Which of the following is an assumption of linear programming

All costs are either variable or fixed for a single cost driver

Which of the following is the mathematical expression for the budgeted fixed overhead cost per unit of cost allocation base?

Budgeted fixed overhead cost per unit of cost allocation base = Budgeted total costs in fixed overhead cost pool ÷ Budgeted total quantity of cost allocation base

Which of the following mathematical expression is used to calculate budgeted variable overhead cost rate per output unit?

Budgeted input allowed per output unit × Budgeted variable overhead cost rate per input unit

T/F If a company chooses practical capacity for planning purposes, it must also use practical capacity for performance evaluation.

False

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

False

Which of the following is true of depreciation cost

Depreciation cost on equipment is irrelevant in decision making because depreciation on equipment that has already been purchased is a past cost.

Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container. Budgeted quantity Budgeted price Direct materials 0.90 pounds $60 per pound Direct labor 0.10 hours $30 per hour During June, Heavy Products produced and sold 19,000 containers using 1,200 pounds of direct materials at an average cost per pound of $63 and 17,100 direct manufacturing labor-hours at an average wage of $31.25 per hour. The direct manufacturing labor price variance during June is _______

Direct manufacturing labor price variance = 17,100 dlh × ($30 − $31.25) = $21,375 U

______ is the continuing reduction in the demand for a company's products that occurs when competitor prices are NOT met.

Downward demand spiral

Place the following steps from the five-step decision process in order: A = Obtain information including historical costs B = Evaluate performance to provide feedback 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 a true statement of energy costs

Energy costs are a growing component of variable overhead costs

T/F: A favorable expense variance results when actual costs exceed budgeted costs

False

T/F: A favorable fixed overhead flexible-budget variance indicates that actual fixed costs exceeded the lump-sum amount budgeted

False

T/F: At the end of the fiscal year, the fixed overhead spending variance is always prorated among work-in- process control, finished goods control, and cost of goods sold on the basis of the fixed overhead allocated to these accounts

False

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

False

T/F: Business function costs are the sum of all variable and fixed costs in all business functions of the value chain.

False

T/F: Causes of a favorable variable overhead efficiency variance might include using lower-skilled workers than expected.

False

T/F: Computing standard costs at the start of the budget period results in a complex record keeping system

False

T/F: Differential revenue is the additional total revenue from an activity.

False

T/F: Direct costing is a perfect way to describe the variable-costing inventory method.

False

T/F: Equal weight must be given to qualitative factors and quantitative nonfinancial factors while making decisions

False

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

False

T/F: Fixed costs automatically increase or decrease with the level of activity within a relevant range of activity

False

T/F: Fixed costs for the period are by definition a lump sum of costs that remain unchanged and therefore the fixed overhead spending variance is always zero.

False

T/F: Fixed manufacturing cost per unit will be the same no matter what capacity concept is used.

False

T/F: For one-time-only special orders, fixed costs may be relevant but NOT variable costs.

False

T/F: For revenue items, a favorable variance means that actual revenues are less than expected.

False

T/F: For short-run product-mix decisions, managers should focus on minimizing total fixed cost

False

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

False

T/F: Full costs of a product include variable and fixed costs in a particular business function in the value chain.

False

T/F: If budgeted and actual machine hours are equal, spending variance will always be nil

False

T/F: If the production planners set the budgeted machine hours standards too loose, one could anticipate there would be a favorable fixed overhead efficiency variance

False

T/F: If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be a favorable variable overhead efficiency variance

False

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

False

T/F: In variable costing, all nonmanufacturing costs are subtracted from contribution margin.

False

T/F: Incremental revenue is the sum of differential revenues of two alternatives

False

T/F: Lump-sum fixed costs of acquiring capacity decrease automatically if the capacity needed turns out to be less than the capacity acquired

False

T/F: Managers can always view a favorable variable overhead spending variance as desirable.

False

T/F: Managers can increase operating income when absorption costing is used by producing less inventory.

False

T/F: 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

T/F: Outsourcing is risk free to the manufacturer because the supplier now has the responsibility of producing the part

False

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

False

T/F: Revenues that remain the same for two alternatives being examined are relevant revenues

False

T/F: Service-sector companies have no use of variance analysis as only few costs can be traced to their outputs in a cost effective way.

False

T/F: Standard costing is a cost system that allocates overhead costs on the basis of overhead cost rates based on actual overhead costs times the standard quantities of the allocation bases allowed for the actual outputs produced.

False

T/F: Studies show that variance analysis is no longer a popular tool of corporate managers as they have adopted various other forms of performance evaluation.

False

T/F: The contribution-margin format of the income statement distinguishes manufacturing costs from nonmanufacturing costs.

False

T/F: The contribution-margin format of the income statement is used with absorption costing

False

T/F: The following overhead variances would result in a total-overhead variance of $15,000 favorable: spending variance $5,000 U, efficiency variance $20,000 F, and production-volume variance $30,000 U

False

T/F: The gross-margin format of the income statement highlights the lump sum of fixed manufacturing costs.

False

T/F: The income under variable costing will always be the same as the income under absorption costing

False

Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container. Budgeted quantity Budgeted price Direct materials 0.80 pounds $60 per pound Direct labor 0.10 hours $20 per hour During June, Heavy Products produced and sold 15,000 containers using 25,000 pounds of direct materials at an average cost per pound of $64 and 12,000 direct manufacturing labor-hours at an average wage of $21.56 per hour

Flexible-budget variance = (25,000 × $64) − (15,000 × 0.80 × $60) = $880,000 U

Which of the following is true of relevant information?

Future

________ reduces theoretical capacity for unavoidable operating interruptions

Practical capacity

Which of the following is true of flexible budget?

It calculates total variable cost 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 cost

Which of the following best defines standard costing?

It is a system that traces direct costs to output produced by multiplying the standard prices or rates by the standard quantities of inputs allowed for the actual output produced.

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

It is relevant since it reduces the cost of the new equipment

Which of the following is true of an opportunity cost?

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

Fixed overhead costs include ____

Leasing of machinery used in a factory

Which of the following is not true of the 3 level variance analysis of operating income?

Level 3 shows the fixed overhead production volume variance as a component of the sales-volume variance for operating income

Which of the following is true of variance?

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

______ provides the lowest estimate of denominator-level capacity

Master-budget capacity utilization

_______ is (are) based on the demand for the output of the plant

Master-budget capacity utilization and Normal capacity utilization

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

Which of the following statements is FALSE?

Nonmanufacturing costs are expensed in the future under variable costing.

________ is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year.

Normal capacity utilization

________ is the level of capacity utilization that satisfies average customer demand over a period that includes seasonal, cyclical, and trend factors.

Normal capacity utilization

Which of the following is a component of sales-volume variance

Operating-income volume variance

________ is relevant in a decision to replace equipment.

Salvage value

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

Some portion of fixed costs that would be saved if the product is outsourced

Standard material cost per kg of raw material is $6.50. Standard material allowed per unit is 5 Kg. Actual material used per unit is 6.00 Kg. Actual cost per kg is $6.00. What is the standard cost per output unit?

Standard cost per output unit = Standard material cost per kg × standard material allowed per unit = $6.50 × 5 kg = $32.50

Daniels Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and had used a budgeted selling price of $20 per unit. Actual Budgeted Units sold 280,000 units 279,000 units Variable costs $980,000 $881,000 Fixed costs $58,000 $45,000 What is the static-budget variance of revenues?

Static-budget variance of rev.=(280,000 units*$19)− (279,000 units × $20)=$260,000 U

Schooner Corporation used the following data to evaluate its current operating system. The company sells items for $23 each and used a budgeted selling price of $23 per unit. Actual Budgeted Units sold 171,000 units 187,000 units Variable costs $1,081,000 $1,285,000 Fixed costs $800,000 $774,000 What is the static-budget variance of revenues?

Static-budget variance of revenues = (171,000 units*$23) − (187,000 units × $23)=$368,000 U

Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and used a budgeted selling price of $19 per unit. Actual Budgeted Units sold 48,000 units 39,000 units Variable costs $167,000 $152,000 Fixed costs $41,000 $50,00 What is the static-budget variance of revenues?

Static-budget variance of revenues = (48,000 units × $19) - (39,000 units × $19) = $171,000 F

Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit. Actual Budgeted Units sold 45,000 unit 31,000 units Variable costs $161,000 $150,000 Fixed costs $44,000 $50,000 What is the static-budget variance of variable costs

Static-budget variance of variable costs = $161,000 − $150,000 = $11,000 U

T/F: If the company's fixed overhead spending variance was unfavorable it could be attributed to higher plant-leasing costs

True

Which of the following statements is true of fixed overhead cost variances?

The difference between flexible budget costs and allocated overhead costs will give the production volume variance

Which of the following is true in a decision to keep or replace existing equipment

The disposal value of the old equipment is relevant

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

T/F: In a make-or-buy decision when there are alternative uses for capacity, the opportunity cost of idle capacity is relevant

True

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.

________ is the level of capacity based on producing at full efficiency all the time

Theoretical capacity

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

T/F: ) If fixed overhead cost variances are always written off to Cost of Goods Sold, operating income can be manipulated for either financial reporting or income tax purposes

True

T/F: A company may use absorption costing for external reports and still choose to use throughput costing for internal reports.

True

T/F: A cost may be relevant for one decision, but NOT relevant for a different decision.

True

T/F: A difference between the static-budget and the flexible-budget amounts is called the sales-volume variance

True

T/F: A manager can increase operating income by deferring maintenance beyond the current accounting period when absorption costing is used.

True

T/F: A master budget is called a static budget because it is developed around a single planned output level

True

T/F: A standard is attainable through efficient operations but allows for normal disruptions such as machine breakdowns and defective production

True

T/F: A variance is the difference between the actual cost for the current and expected (or budgeted) performance

True

T/F: Absorption costing is required by GAAP (Generally Accepted Accounting Principles) for external reporting.

True

T/F: Allocated fixed overhead can be expressed in terms of allocation-base units or in terms of the budgeted fixed cost per unit.

True

T/F: An effective plan for variable overhead costs will eliminate activities that do not add value

True

T/F: At the start of the budget period, management will have made most decisions regarding the level of fixed overhead costs to be incurred

True

T/F: 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

T/F: Data from normal costing and standard costing are used in pricing and product-mix decisions

True

T/F: Decisions about whether a producer of goods or services will insource or outsource are also called make-or-buy decisions

True

T/F: Differential revenue is the difference in total revenue between two alternatives.

True

T/F: Expected performance is also called budgeted performance

True

T/F: Fixed manufacturing costs included in cost of goods available for sale + the production-volume variance will always = total fixed manufacturing costs under absorption costing

True

T/F: 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

T/F: For decision making, differential costs assist in choosing between alternatives.

True

T/F: For short-run product-mix decisions, maximizing contribution margin will also result in maximizing operating income.

True

T/F: If Option 1 costs $120 and Option 2 costs $90, then the differential cost is $30.

True

T/F: If managers report inventories of zero at the start and end of each accounting period, operating incomes under absorption costing and variable costing will be the same

True

T/F: In a one-time special order situation, if the price offered 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

T/F: In linear programming, a constraint is a mathematical inequality or equality that must be satisfied by the variables in a mathematical model.

True

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

True

T/F: 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

T/F: Linear programming is a tool that maximizes total contribution margin of a mix of products with multiple constraints.

True

T/F: 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

T/F: Managers can use variance analysis to make decisions about the mix of products to make

True

T/F: Many companies use variable costing for internal reporting to reduce the undesirable incentive to build up inventories.

True

T/F: Marketing costs will be an irrelevant cost in the decision making of a one-time-only special order.

True

T/F: Nonfinancial measures such as comparing units in ending inventory this period to units in ending inventory last period can help reduce buildup of excess inventory.

True

T/F: Opportunity costs are not recorded in financial accounting systems because historical record keeping is limited to transactions involving alternatives that managers actually selected rather than alternatives that they rejected

True

T/F: Outsourcing is purchasing from outside vendors parts and other goods instead of producing your own and contracting for services instead of providing them yourself.

True

T/F: Past costs are also called sunk costs because they are unavoidable and cannot be changed no matter what action is taken.

True

T/F: Past costs themselves are always irrelevant when making decisions.

True

T/F: Performance evaluation focuses on responsibility centers for a specific period, not on projects or individual items of equipment over their useful live

True

T/F: Possible reasons for the larger actual materials-handling labor-hours per batch include the possibility of inefficient layout of production facilities

True

T/F: Product-mix decisions usually have only a short-run focus because they typically arise in the context of capacity constraints that can be relaxed in the long run

True

T/F: Prorated allocation of production-volume variance has the effect of approximating the allocation of fixed costs based on actual costs and actual output

True

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

True

T/F: Qualitative factors, as well as relevant revenues and relevant costs need to be considered when selecting among alternatives.

True

T/F: Quantitative factors, such as direct material costs, are outcomes that are measured in numerical terms

True

T/F: Standard costing is a costing system that allocates overhead costs on the basis of the standard overhead-cost rates times the standard quantities of the allocation bases allowed for the actual outputs produced

True

T/F: Static-budget variance for operating income is calculated by taking a difference between static-budget operating income and actual operating income

True

T/F: Sunk costs are irrelevant to decision making.

True

T/F: The accounting for 3-variance analysis is simpler than the 4-variance analysis, but some information is lost because the variable and fixed overhead spending variances are combined into a single total overhead spending variance

True

T/F: The costs related to buildings (such as rent and insurance), equipment (such as lease payments or straight-line depreciation), and salaried labor in a factory are all examples of cost items that would be part of the fixed overhead budget

True

T/F: The difference in operating income under absorption costing and variable costing is due solely to the timing difference of expensing fixed manufacturing costs

True

T/F: The fixed setup overhead flexible-budget variance is calculated as actual costs - flexible-budget variance

True

T/F: The flexible budget highlights the differences between budgeted costs and budgeted quantities versus actual costs and actual quantities for the budgeted output level.

True

T/F: The main difference between variable costing and absorption costing is the way in which fixed manufacturing costs are accounted for.

True

T/F: The planning of fixed overhead costs differs from the planning of variable overhead costs in terms of timing

True

T/F: 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

T/F: The production-volume variance is a component of the sales-volume variance

True

T/F: The rent paid for an already existing facility is an example of a sunk cost.

True

T/F: The two most common methods of costing inventories in manufacturing companies are variable costing and absorption costing

True

T/F: The variable overhead efficiency variance is the difference between actual quantity of the cost-allocation base used and budgeted quantity of the cost-allocation base allowed for actual output, multiplied by the budgeted variable overhead cost per unit of the cost-allocation base

True

T/F: Throughput costing provides more incentive to produce for inventory than either variable costing or, especially, absorption costing.

True

T/F: Tightly budgeted machine time standards can lead to unfavorable variable overhead efficiency variance

True

T/F: To maximize profits, managers should produce more of the product with the greatest contribution margin per unit of the constraining resource

True

T/F: Under absorption costing, all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.

True

T/F: Under absorption costing, managers can increase operating income by producing more inventory at the end of the accounting period.

True

T/F: Under both variable and absorption costing, all variable manufacturing costs are inventoriable costs.

True

T/F: Under the opportunity cost approach, the cost of each alternative includes the incremental costs and the opportunity cost

True

T/F: Under the opportunity-cost approach, the relevant cost of any alternative is the incremental of the alternative plus the opportunity cost of the profit foregone from choosing the alternative

True

T/F: Unskilled work force can lead to unfavorable efficiency variance

True

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

True

T/F: Variable overhead has no production-volume variance

True

T/F: Variances are used for evaluating performance and for motivating managers.

True

T/F: When actual revenues exceed budgeted revenues, a favorable variance arises.

True

T/F: When capacity is constrained, relevant costs equal incremental costs plus opportunity costs.

True

T/F: When capacity is constrained, the relevant revenues and costs of any alternative equal the incremental future revenues and costs plus the opportunity cost.

True

T/F: When distribution costs are high, managers can use standard costing to analyze variances for spending and efficiency variances.

True

T/F: When forecasting fixed costs, managers should concentrate on total lump-sum costs instead of unitized fixed overhead costs

True

T/F: When production deviates from the denominator level, a production-volume variance always exists under absorption costing.

True

T/F: When production quantity exceeds sales, throughput costing results in reporting lower operating income than variable costing.

True

T/F: When replacing an old machine with a new machine, the new machine's depreciation expense is relevant

True

T/F: When variable costing is used, an income statement will show contribution margin

True

T/F: hroughput costing is also referred to as super-variable costing.

True

T/F: ne of the most common problems reported by companies using variable costing is the difficulty of classifying costs into fixed or variable categories.

True

At the end of the accounting period Bumsted Corporation reports operating income of $30,000. If Bumstead's inventory levels decrease during the accounting period

absorption costing will report less operating income than variable costing

________ is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs and all fixed manufacturing costs are excluded.

Variable costing

________ is a method of inventory costing in which only variable manufacturing costs are included

Variable costing

________ are subtracted from sales to calculate contribution margin

Variable manufacturing costs and Variable selling and administrative costs

_______ are subtracted from sales to calculate gross margin.

Variable manufacturing costs and Fixed manufacturing costs

Which of the following statements is true of variable overhead costs

Variable overhead costs have no production-volume variance.

When machine-hours are used as an overhead cost-allocation base, the most likely cause of a favorable variable overhead spending variance is ______

a decline in the cost of energy

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

Which of the following inventory costing methods shown below is most likely to cause undesirable incentives for managers to build up finished goods inventory?

absorption costing

Which of the following inventory costing methods shown below is required by GAAP (Generally Accepted Accounting Principles) for external financial reporting?

absorption costing

When comparing the operating incomes between absorption costing and variable costing, and ending finished inventory exceeds beginning finished inventory, it may be assumed that:

absorption costing operating income exceeds variable costing operating income

The variable overhead efficiency variance measures the difference between the ________, multiplied by the budgeted variable overhead cost per unit of the cost-allocation base

actual quantity of the cost-allocation base used and the budgeted quantity of the cost-allocation base that should have been used to produce the actual output

When variable overhead efficiency variance is favorable, it can be safely assumed that the ___

actual quantity of the cost-allocation base used is lower than the budgeted quantity

When variable overhead spending variance is unfavorable, it can be safely assumed that __

actual rate per unit of cost-allocation base is higher than budgeted rate

A favorable variance indicates that _____

actual revenues exceed budgeted revenue

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

actual units sold

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

In linear programming, the goals of management are expressed in ____

an objective function

The use of theoretical capacity results in an unrealistically low fixed manufacturing cost per unit because it is based on:

an unattainable level of capacity

When making decisions _____

appropriate weight must be given to both quantitative and qualitative factors

Capacity costs:

are difficult to estimate

A master budget is ______

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

The process by which a company's products or services are measured relative to the best possible levels of performance is known as ______

benchmarking

The flexible budget contains _____

budgeted amounts for actual output

Which of the following is the correct mathematical expression to calculate the fixed overhead production-volume variance?

budgeted fixed overhead − fixed overhead allocated for actual output

Which of the following minimizes the risks of outsourcing?

building close partnerships with the supplier

Flexible budget

calculates budgeted revenue and budgeted costs based on the actual output in the budget period

Using master-budget capacity to set selling prices:

can result in a downward demand spiral

Normal capacity utilization:

can result in setting selling prices that are not competitive

Given a constant contribution margin per unit and constant fixed costs, the period-to-period change in operating income under variable costing is driven solely by:

changes in the quantity of units actually sold

Switching production to products that absorb the highest amount of fixed manufacturing costs is also called:

cherry picking

The major challenge when planning fixed overhead is ____

choosing the appropriate level of capacity

Compared to variable overhead costs planning, fixed overhead cost planning has an additional strategic issue beyond undertaking only essential activities and efficient operations. That additional requirement is best described as:

choosing the appropriate level of capacity that will benefit the company in the long-run

Effective planning of fixed overhead costs includes ___

choosing the appropriate level of investment in productive assets

When large differences exist between practical capacity and master-budget capacity utilization, companies may

classify the difference as planned unused capacity

An unfavorable sales-volume variance could result from ___

competitors taking market share

Top management faces a persistent challenge to make sure that the performance evaluation model of lower level managers is ___

consistent with the decision model

A mathematical inequality or equality that must be appeased is known as a(n) _____

constraint

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

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

The formal process of choosing between alternatives is known as a(n) ___

decision model

Critics of absorption costing suggest to evaluate management on their ability to:

decrease inventory costs

Ways to "produce for inventory" that result in increasing operating income include:

deferring maintenance to accelerate production

The production-volume variance may also be referred to as the ____

denominator-level variance

Which of the following is an irrelevant cost when considering where to drop a customer?

depreciation

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

determine whether excess capacity is available

Absorption costing is required for all of the following except:

determining a competitive selling price

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 costs are $4 per unit

Which of the following cost(s) are inventoried when using variable costing?

direct manufacturing costs

Which of the following cost(s) are inventoried when using absorption costing?

direct manufacturing costs and fixed manufacturing costs

The gross-margin format of the income statement:

distinguishes between manufacturing and nonmanufacturing costs

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

effectiveness

For fixed manufacturing overhead, there is no ____

efficiency variance

Which variance is calculated using the formula (AQ - BQ) BP is the ______

efficiency variance

All of the following are examples of quantitative factors except

employee morale

Which method is NOT a way to discourage producing for inventory

evaluate performance on a quarterly basis only

Sunk costs are ignored when

evaluating alternatives

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

evaluation and feedback

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

excess capacity

Relevant costs are ___

expected future cost

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

expected future costs that differ among the alternatives

T/F: Variable costing includes all variable costs both manufacturing and nonmanufacturing in inventory.

false

In flexible budgets the costs that are not "flexed" because they remain the same within a relevant range of activity (such as sales or output) are called ________.

fixed costs

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 cost

The difference between operating incomes under variable costing and absorption costing centers on how to account for:

fixed manufacturing costs

The only difference between variable and absorption costing is the expensing of:

fixed manufacturing costs

Advocates of throughput costing maintain that:

fixed manufacturing costs are related to the capacity to produce rather than to the actual production of specific units

There is NOT an output-level variance for variable costing, because:

fixed manufacturing overhead is not allocated to work in process

Under standard costing, _____

fixed overhead costs are treated as if they are a variable cost

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

When fixed overhead spending variance is unfavorable, it can be safely assumed that __

flexible budget amount is lower than actual costs incurred

The fixed overhead cost variance can be further subdivided into the ___

flexible-budget variance and the production-volume variance

Effective planning of variable overhead costs means that managers must

focus on activities that add value for the customer and eliminate nonvalue-added activities

A decision model involves a(n) _______

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

When deciding whether to discontinue a segment of a business, relevant costs include ___

future administrative costs that can be eliminated

A relevant cost is a cost that is a(n) ___

future cost

A relevant revenue is revenue that is a(n) _____

future revenue and differs among alternative courses of action

Fixed overhead costs ___

have no efficiency variance

Product mix decisions ____

help determine how to maximize operating profit

Master-budget capacity utilization:

hides the amount of unused capacity

With a constraining resource, managers should choose the product with the __

highest contribution margin per unit of the constraining resource

The contribution-margin format of the income statement:

highlights the lump sum of fixed manufacturing costs

Quantitative factors ____

include both financial and nonfinancial information

Absorption costing:

includes fixed manufacturing overhead as an inventoriable cost

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

Practical capacity may:

increase over time due to improvements in plant layout

Discontinuing unprofitable products will __

increase profitability if the resources no longer required by the discontinued product can be eliminated

Capacity constraints include ___

increased need of display space for a retailer

The effect of spreading fixed manufacturing costs over a shrinking master-budget capacity utilization amount results in:

increased unit costs

Under absorption costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in

increasing the manager's bonus

For make-or-buy decisions, relevant costs include ____

incremental costs plus opportunity costs

One-time-only special orders should only be accepted if _____

incremental revenues exceed incremental costs

When there is an 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

Static budget

is based on the level of output planned at the start of the budget period

A flexible budget ____

is developed at the end of the period

Differences between absorption costing and variable costing are much smaller when a

large part of the manufacturing process is subcontracted out and just-in-time inventory strategy is implemented

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

leakage of intellectual property

A favorable efficiency variance for direct manufacturing labor indicates that ____

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

The higher the denominator level, the:

lower the amount of fixed manufacturing costs allocated to each unit produced

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

making outsourcing decision

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

The marketing manager's performance evaluation is most fair when based on a denominator level using:

master-budget capacity utilization

An unfavorable production-volume variance ______

measures the amount of extra fixed costs planned for but not used

Variable and absorption costing may be combined with all costing systems EXCEPT

mixed costing

If the unit level of inventory increases during an accounting period, then:

more operating income will be reported under absorption costing than variable costing

For managers attempting to maximize operating income for a product offering with a great deal of variety, product-mix decisions must usually take into account

more than one constraining resource

Colonial North Manufacturing, Inc. is considering eliminating 1 of its product lines. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinue. What financial effects occur if the product line is discontinued?

net income will decrease by the amount of the contribution margin of the product line being discontinued

It is most difficult to estimate ________ because of the need to predict demand for the next few years.

normal capacity utilization

Under variable costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in:

not affecting the manager's bonus

Unit cost data can most mislead decisions by ___

not computing unit costs at the same output level

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

obtain information

All of the following are examples of drawbacks of using absorption costing EXCEPT:

operating income solely reflects income from the sale of units and excludes the effects of manipulating production schedules

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

opportunity cost

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

organizational learning

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

outsourcing

Which of the following is an example of nonfinancial performance measure?

percentage of products started and completed without requiring any rework

If management takes a multiple-year view in the decision model and judges success according to the current year's results, a problem will occur in the _

performance evaluation model

Variable costing regards fixed manufacturing overhead as a(n):

period cost

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

potential rental income from space occupied by the production area

The Internal Revenue Service requires the use of ________ for calculating fixed manufacturing costs per unit

practical capacity

From the perspective of long-run product costing it is best to use:

practical capacity for pricing decisions

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

) Which variance is calculated by using the formula: (AP - BP) AQ is the _____

price variance

The flexible-budget variance for direct cost inputs can be further subdivided into a ____

price variance and an efficiency variance

Determining which products should be produced when the plant is operating at full capacity is referred to as a(n) ____

product-mix decision

An favorable production-volume variance occurs when

production exceeds the denominator level

If a 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

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

qualitative factor

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

qualitative factor

The sales-volume variance is sometimes due to _____

quality problems leading to customer dissatisfaction

Effective planning of variable overhead costs includes ____

redesigning products or processes to use fewer resource

Practical capacity is the denominator-level concept that

reduces theoretical capacity for unavoidable operating interruptions

Which of the following costs always differ among future alternatives?

relevant cost

In evaluating different alternatives, it is useful to concentrate on ______

relevant costs

Budgeted fixed manufacturing costs of a product using practical capacity:

represents the cost per unit of supplying capacity

Throughput contribution equals:

revenues minus all direct material cost of goods sold

The theory of constraints (TOC) defines throughput margin as ___

revenues minus the direct material costs of the goods sold

What is a standard costing system?

s a costing system that (1) traces direct costs to output produced by multiplying the standard prices or rates by the standard quantities of inputs allowed for actual outputs produced and (2) allocates overhead costs on the basis of the standard overhead-cost rates times the standard quantities of the allocation bases allowed for the actual outputs produced

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

separating total costs into variable and fixed component

Each of the following are true of relevant information except

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

One possible means of determining the difference between operating incomes for absorption costing and variable costing is by:

subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory

Throughput costing is also called

super-variable costing

Sunk costs are costs

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

An unfavorable variance indicates that _____

the actual units sold are less than the budgeted unit

A $5,000 unfavorable flexible-budget variance indicates that _____

the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000

The variable overhead spending variance measures the difference between ________, multiplied by the actual quantity of variable overhead cost-allocation base used.

the actual variable overhead cost per unit and the budgeted variable overhead cost per unit

The breakeven point using absorption costing depends on all of the following factors, EXCEPT:

the budgeted level of production

Opportunity costs is defined as ___

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

Customers expect to pay a price that includes:

the cost of actual capacity used

An unfavorable fixed overhead spending variance indicates that __

the price of fixed overhead items cost more than budgeted

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

A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?

the setup cost of the new equipment

The difference between Flexible and Static budget

the static budget is prepared for the planned output, whereas the flexible budget is prepared based on the actual output.

Based on the theory of constraints, investments equal ____

the sum of material costs in direct materials, work-in-process, and finished goods inventories; R&D costs; and capital costs of equipment and building

Operating income reported on the end-of-period financial statements is changed when ________ is (are) used to handle the production-volume variance at the end of the accounting period.

the write-off variances to cost of goods sold approach

The budgeted fixed manufacturing cost rate is the lowest for:

theoretical capacity

Companies have recently been able to reduce inventory levels because

there is better sharing of information between suppliers and manufacturers and just-in-time production strategies are being implemented

If 1,000 units are produced and only 700 units are sold, ________ results in the greatest amount of expense reported on the income statement.

throughput costing

If 800 units are produced and 1,200 units are sold, ________ results in the greatest amount of operating income.

throughput costing

Which of the following inventory costing methods results in the LEAST amount of costs being inventoried?

throughput costing

Which of the following inventory costing methods shown below is LEAST likely to cause undesirable incentives for managers to build up finished goods inventory?

throughput costing

Many companies have switched from absorption costing to variable costing for internal reporting

to reduce the undesirable incentive to build up inventories

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

These questions refer to flexible-budget variance formulas with the following descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity. The best label for the formula [(AP)(AQ) - (BP)(BQ)] is the ________.

total flexible-budget variance

If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the ___

total variable cost of producing the product

Variable costing:

treats direct manufacturing costs as a product cost

A favorable price variance for direct manufacturing labor might indicate that ___

underskilled employees are being hired

When machine-hours are used as an overhead cost-allocation base and annual leasing costs for equipment unexpectedly increase, the most likely result would be to report a(n) ____

unfavorable fixed overhead flexible-budget variance

While calculating the costs of products and services, a standard costing system ____

uses standard costs to determine the cost of products

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

using more input quantities than were budgeted

In general, if inventory increases during an accounting period,

variable costing will report less operating income than absorption costing.

One possible reason for unfavorable variable overhead efficiency variance for materials handling is ______

very tight standards for materials-handling time

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 a certain percentage of budgeted costs, as determined by management

Theoretical capacity:

when used for product costing results in the lowest cost estimate of the four capacity options

The gross-margin format of the income statement is used

with absorption costing

The contribution-margin format of the income statement is used

with variable costing

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 inefficiently