Accounting 2 exam 3

The first step in decision making is to ______.

Define the alternatives

The accounting depreciation of an existing asset is relevant to decisions.

False

The labor rate variance measures the productivity of direct labor.

False

Choose the four groups of performance measures typically used in the balanced scorecard approach.

Financial, customer, internal business processes, and learning and growth

Net operating income is income before

Interest and Taxes

Costs and benefits that should be ignored when making decisions are called ______ costs and benefits.

Irrelevant

The potential benefit given up when selecting one alternative over another is a(n) ______ cost.

Opportunity

In the context of decision making, every decision involves choosing from among at least two alternatives.

True

A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in ______.

contribution margin

In a standard cost system, ______.

every unit of output is charged with the same amount of overhead cost

Irrelevant costs include _____.

future costs that do not differ between alternatives, and sunk costs

Favorable variances ______ retained earnings and unfavorable variances ______ retained earnings.

increase, decrease

When direct labor is used as the overhead allocation base, the variable overhead efficiency variance ______.

is favorable when the direct labor efficiency variance is favorable

Actual cost per unit - standard cost per unit) × actual quantity = the materials ______ Variance

price

A benchmark used in measuring performance is called a

standard

When making a decision, irrelevant items are included in the analysis of both alternatives when using ______.

the total cost approach only

When considering decision alternatives, both relevant and irrelevant costs are included when using the _____ cost approach

total

In a standard cost system overhead is applied using the standard hours allowed for the actual production.

true

If the planned budget revenue for 5,000 units is $120,000, the flexible budget revenue for 4,500 units is ______.

$120,000 ÷ 5,000 = $24 per unit × 4,500 = $108,000

Quick to Ship Company has a process time of 2 days and a throughput time of 8 days. The manufacturing cycle efficiency is Blank______.

2 ÷ 8 =.25

The calculation of the budget variance uses ______ overhead.

Actual fixed and budgeted fixed

A normal cost system applies overhead to production on the basis of the ______ level of activity, while a standard costing system applies overhead on the basis of _______ hours allowed for the actual output

Actual, standard

A(n) __________ consists of an integrated set of performance measures that are derived from and support a company's strategy

Balanced Scorecard

The difference between the actual fixed overhead and the planned fixed overhead is called the _______ variance.

Budget

Service departments, such as the accounting department, are generally considered ______ centers, while sales offices are often considered _____ centers.

Cost, Profit

The elapsed time from when a customer order is received until the finished goods are shipped is known as the

Delivery Cycle Time

A future cost that is not the same between any two alternatives is known as a(n) _______, incremental, or avoidable cost.

Differential

Opportunity costs are not found in accounting records because they are not relevant to decisions.

False

Estimates of what revenues and costs should have been based on the actual level of activity are shown on the _______ budget

Flexible

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ______.

Income Statements

Synonyms for differential costs include ______ cost.

Incremental, Avoidable

Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.

Irrelevant

In order to fully understand how a manager's decisions can affect ROI, both ___________ should be computed.

Margin and turnover

Computing ROI using the expanded model provides additional insights. ROI can be lowered by excessive operating expenses which can depress _________ and excessive operating assets which can depress _________.

Margin, Turnover

The terms price and quantity are used when computing direct ______ variance, while the terms rate and hours are used when computing direct _______ variances

Material, Labor

The terms price and quantity are used when computing direct _______ variance, while the terms rate and hours are used when computing direct _______ variances

Material, Labor

When planning a road trip, the ______ is a sunk cost and should be ignored.

Original Cost of the car

Comparing actual net income to budgeted net income is often done to evaluate the manager of a(n) ______ center

Profit

Most companies compute the material price variance when materials are ______ and the material quantity variance when materials are ______.

Purchased, used

An increase in cost between two alternatives is a(n) _____ cost.

Relevant

Differential revenue is an example of a(n) ______ benefit.

Relevant

When making a decision, only ______ costs and benefits should be included in the analysis.

Relevant

The net operating income that an investment center earns above the minimum required return on its average operating assets is ______.

Residual Income

Net operating income - (Average operating assets × Minimum required rate of return) =

Residual income

Any part of an organization whose manager has control over and is accountable for all three centers (cost, profit, or investments) is a(n) ______ center.

Responsibility

Which of the following is not one of the three primary types of responsibility centers?

Sales

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost is a(n) _____ variance.

Spending

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs.

Sunk

Costs that have no impact on future cash flows and are irrelevant to decisions are ______ costs.

Sunk

Which statement regarding variable overhead variance analysis is true?

The variable overhead efficiency is calculated by multiplying the variance in the labor hours with the variable portion of the predetermined overhead rate.

The manufacturing cycle efficiency (MCE) is computed by relating the value-added time to the ______ time.

Throughput

The period from which a product begins production as raw materials and ends as a finished product is known as _______ time or manufacturing cycle time.

Throughput

A flexible budget shows what budgeted amounts should have been at the actual level of activity. As a result of this change in activity, the flexible budget will show a change in total ______.

Variable cost and revenue

The materials price variance is the difference between the actual price of materials ______.

and the standard price for materials with the difference multiplied by the actual quantity of materials

A disadvantage of the residual income approach is that it ______.

cannot be used to evaluate different sized divisions

The difference between the actual hours used and the standard hours allowed for the actual output is used in the calculation of the labor _____ variance

efficiency

The standard hours per unit includes both direct and indirect labor hours.

false

In order to prevent confusion and keep attention focused on critical information, it is desirable to ______.

isolate relevant costs from irrelevant costs

EBIT is another term for ______.

net operating income

the difference between the standard and the actual direct labor wages per hour is reflected in the labor ____ variance

rate

The labor efficiency variance is the difference between actual hours used and standard hours allowed multiplied by the ______ hourly rate.

standard