ACC 5ucks
In early July, Mike Gottfried purchased a $70 ticket to the December 15 game of the Chicago Titans. (The Titans belong to the Midwest Football League and play their games outdoors on the shore of Lake Michigan.) Parking for the game was expected to cost approximately $22, and Gottfried would probably spend another $15 for a souvenir program and food. It is now December 14. The Titans were having a miserable season and the temperature was expected to peak at 5 degrees on game day. Mike therefore decided to skip the game and took his wife to the movies, with tickets and dinner costing $50. The sunk cost associated with this decision situation is
$70
To obtain the dollar sales volume necessary to attain a given target profit, which of the following formulas should be used
(Fixed expenses + Target net profit)/Contribution margin ratio.
Which of the following would depict the logical order for preparing (1) a production budget, (2) a cash budget, (3) a sales budget, and (4) a direct-labor budget?
3-1-4-2.
Which of the following has the weakest linkage between activity and cost driver?
Activity: Cost Driver: Quality control Square feet of floor space
Which of the following costs would continue to be incurred even if a segment is eliminated?
Common fixed costs
A company will improve job cost accuracy by using multiple overhead rates even if it cannot identify more than one overhead cost driver.
False
A duration driver provides a simple count of the number of times that an activity occurs.
False
A major advantage of the high-low method of cost estimation is that it omits all data from the analysis other than the lowest and highest costs.
False
A shift in the sales mix from low-margin items to high-margin items will decrease total profits even though total sales increase.
False
A special order generally should be accepted if the revenue exceeds total costs, regardless of available capacity.
False
Allocating common fixed costs to segments on segmented income statements increases the usefulness of such statements.
False
An unfavorable labor efficiency variance occurs when the actual hours used in production is less than the standard hours allowed for the budgeted output of the period.
False
Departmental overhead rates will correctly assign overhead costs in situations where a company has a range of products that differ in volume, lot size, or complexity of production.
False
Fixed production cost incurred prior to split-off is relevant in a decision regarding whether the product should be processed further.
False
Generally speaking, when going through the process of computing a predetermined overhead rate, the estimated total manufacturing overhead cost is determined before estimating the amount of the allocation base.
False
If a company closes any underapplied or overapplied manufacturing overhead to the Cost of Goods Sold account, then Cost of Goods Sold will be debited if manufacturing overhead is overapplied for the period
False
If the labor rate variance is $500 favorable, that would mean that actual total wages paid were $500 more than expected.
False
If the overhead rate is computed annually based on the actual costs and activity for the year, the manufacturing overhead assigned to any particular job can be computed as soon as the job is completed.
False
In a contribution format income statement for a manufacturing company, the cost of goods sold is deducted from sales to arrive at the contribution margin.
False
In the Schedule of Cost of Goods Sold, Cost of goods available for sale = Ending finished goods inventory + Cost of goods manufactured.
False
In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure.
False
Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job.
False
On a manufacturing company's income statement, direct labor is separately listed as an expense.
False
Organization-sustaining activities relate to specific customers and are not tied to any specific products.
False
The activity variance for expenses is unfavorable if the actual expenses for the period exceed the expenses in the static planning budget.
False
The entire difference between the actual manufacturing overhead cost for a period and the applied manufacturing overhead cost is typically closed to the Work In Process account.
False
The number of units in the sales budget and the production budget may differ because of a change in beginning direct material inventory levels.
False
The potential benefit that is given up when one alternative is selected over another is called a sunk cost.
False
The production budget is typically prepared prior to the sales budget.
False
Two companies with the same margin of safety in dollars will also have the same total contribution margin.
False
Under variable costing, fixed manufacturing overhead is treated as a product cost.
False
Using a predetermined overhead rate based on the estimated level of activity for the current period provides more accurate costs for decision-making than if the predetermined overhead rate was based on the level of activity at capacity.
False
Waste on the production line will result in an unfavorable materials price variance.
False
When a company implements activity-based costing, manufacturing overhead cost is often shifted from low volume products to high volume products, with a higher unit cost resulting for the high-volume products.
False
When net income is positive, the degree of operating leverage in a company is smallest near the break-even point and increases as sales volumes rise.
False
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
When using segmented income statements, the dollar sales for a company to break even equals the traceable fixed expenses divided by the overall CM ratio.
False
Within the relevant range, a change in activity results in a change in variable cost per unit and total fixed cost.
False
Which of the following costs are not considered in a differential analysis for a make-or-buy decision?
Fixed overhead that will continue if the item is purchased.
When closing overapplied manufacturing overhead to Cost of Goods Sold, which of the following would be true?
Gross margin will increase.
Which of the following statements concerning multiple overhead rate systems is false?
In departments that are relatively labor-intensive, their overhead costs should be applied to jobs based on machine-hours rather than on direct labor-hours.
Which of the following is an assumption underlying standard CVP analysis?
In multiproduct companies, the sales mix is constant.
Mexico Electronics manufactures a variety of electronic gadgets for use in the home. Which of the following would probably be the most accurate measure of activity to use for allocating the costs of inspecting the finished products at Mexico?
Inspection hours.
Which of the following statements about using a plantwide overhead rate based on direct labor is correct?
It is often overly simplistic and incorrect to assume that direct labor-hours is a company's only manufacturing overhead cost driver.
In a job-order costing system, indirect labor cost is usually recorded as a debit to:
Manufacturing Overhead.
Which of the following statements is false?
Manufacturing overhead is incurred only to support some jobs.
If activity-based costing is used, insurance on the factory would be classified as a(n)
Organization-sustaining activity.
In a job-order costing system based on machine-hours, which of the following formulae is correct?
Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated machine-hours.
Which of the following budgets does not require information from the production budget?
Selling and administrative expenses.
Silver Corporation produces a single product. Last year, the company's variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true?
The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.
Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable labor efficiency variance?
The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid experienced individuals.
A company has two divisions, each selling several products. If segment reports are prepared for each product, the division managers' salaries should be considered as common fixed costs of the products.
True
A credit balance in the Manufacturing Overhead account at the end of the year means that manufacturing overhead was overapplied.
True
A factory supervisor's salary would be classified as an indirect cost with respect to a unit of product.
True
A favorable spending variance occurs when the actual cost is less than the amount of the cost in the flexible budget.
True
A portion of fixed costs that would be saved if the product is outsourced is relevant data in a make-or-buy decision.
True
A revenue variance is the difference between what the total sales revenue should be, given the actual level of activity of the period, and the actual total sales revenue.
True
Advertising is not considered a product cost even if it promotes a specific product.
True
Assuming that there is sufficient demand, managers should produce more of the product with the greatest contribution margin per unit of the constraining resource to maximize profits.
True
Cash collections, in a schedule of cash collections, typically consist of collections on sales made to customers in prior budget periods plus collections on sales made in the current budget period.
True
Factory rent is included in the manufacturing overhead costs budget.
True
If the predetermined overhead rate is based on the estimated level of activity for the current period, the overhead charged to each product includes the cost of unused capacity.
True
If the predetermined overhead rate is based on the level of activity at capacity, the overhead charged to each product is normally lower than if the predetermined overhead rate had been based on the estimated level of activity for the current period.
True
In general, when production exceeds sales for the period, absorption costing net operating income will exceed variable costing net operating income.
True
In the Schedule of Cost of Goods Manufactured, Cost of goods manufactured = Total manufacturing costs + Beginning work in process inventory − Ending work in process inventory.
True
The sum of all manufacturing costs except for direct materials and direct labor is called manufacturing overhead.
True
Variable costing net operating income is usually closer to the net cash flow of a period than is absorption costing net operating income.
True
When expressed on a per unit basis, fixed costs can mislead decision makers into thinking of them as variable costs.
True
When the fixed costs of capacity are spread over the estimated activity of the period rather than the level of activity at capacity, the units that are produced must shoulder the costs of unused capacity.
True
Which of the following is true of a company that uses absorption costing?
Unit product costs can change as a result of changes in the number of units manufactured.
Hoppy Corporation compares monthly flexible budget results to the planning budget prepared at the beginning of the month. When the actual level of activity is less than the planning budget activity, which of the following would be true?
Variable costs would show favorable activity variances.
Which of the following statements concerning direct and indirect costs is false?
Whether a particular cost is classified as direct or indirect does not depend on the cost object.
Generally speaking, net operating income under variable and absorption costing will
be equal when production and sales are equal.
Activity variances are generated when
budgeted costs for planning level of activity are compared with budgeted costs for the actual level of activity.
Spending variances are generated when
budgeted costs for the actual level of activity are compared with actual costs for the actual level of activity.
In analyzing company operations, the controller of the Carson Corporation found a $250,000 favorable flexible budget revenue variance. The variance was calculated by comparing the actual results with the flexible budget. This variance can be wholly explained by
changes in unit selling prices.
If overhead is applied to production using machine hours and the direct labor efficiency variance is favorable, the variable overhead efficiency variance is
either favorable or unfavorable.
A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling price per unit will
have no effect on the contribution margin ratio.
When a flexible budget is used, a decrease in the actual production level within a relevant range would
have no impact on the variable cost per unit.
Which terms would make the following sentence true? Manufacturing companies that benefit the most from activity-based costing are those where overhead costs are a _________ percentage of total product cost and where there is ___________ diversity among the various products that they produce.
high; considerable.
With a constraining resource, managers should choose the product with the
highest contribution margin per unit of the constraining resource.
In describing the cost formula equation, Y = a + bX, which of the following is correct?
in the high-low method, "b" equals the change in cost divided by the change in activity.
Materials used in a factory that are not an integral part of the final product, such as cleaning supplies, should be classified as:
manufacturing overhead.
Which of the following would not affect the break-even point?
number of units sold.
Depreciation on sales office equipment would most likely appear in which of the following budgets?
selling and administrative expenses budget.
The basic difference between a static planning budget and a flexible budget is that a
static planning budget is based on one specific level of production and a flexible budget can be prepared for any production level within a relevant range.
Helen Company produced 3,000 units of its single product, Jellow, during November. The standards for one unit of Jellow specify 6 pounds of materials at $0.30 per pound. There was a favorable materials price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that:
the actual cost per pound for materials was less than the standard cost per pound.
If variable manufacturing overhead is applied on the basis of direct labor-hours and the variable overhead rate variance is unfavorable, then
the actual variable overhead rate exceeded the standard rate.
If manufacturing overhead is underapplied, then:
the amount of manufacturing overhead cost applied to Work in Process is less than the actual manufacturing overhead cost incurred.
Jameson Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost with respect to the stores?
the cost of corporate advertising aired during the Super Bowl.
The following statement is a strength of the high-low method because
the method is relatively simple and easy to apply.
When switching from a traditional costing system to an activity-based costing system that contains some batch-level costs
the unit product costs of high-volume products typically decrease and the unit product costs of low volume products typically increase.
The amount of material to be purchased during the budget period is equal to budgeted
total material needs for production plus ending materials inventory minus the beginning materials inventory.
An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because
under activity-based costing, some manufacturing costs (i.e., the cost of idle capacity and organization-sustaining costs) may not be assigned to products.
Which of the following factors could cause an unfavorable material quantity variance?
using lower quality materials.
A cost that would be included in product costs under both absorption costing and variable costing is
variable manufacturing costs.
