Accounting 2nd Mid Term Multiple Choice

All else being equal, what operating leverage factor indicates a company with the lowest degree of risk?

+1

Put the following ABC implementation steps in order:

1. Identify the products that are the cost objects. 2. Select the cost allocation basis. 3. Compute the allocation rates. 4. Compute the total costs of the products

Which of the following would decrease unit contribution margin the most?

A 15% decrease in selling price

Which of the following is true of costing systems?

ABC systems classify some indirect costs as direct costs helping to improve processes.

Which of the following statements is true of ABC systems?

ABC systems provide valuable information to managers beyond accurate product costs.

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

Activity based costing is more suited to companies with high product diversity than companies with a single product line.

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

Activity-based costing classifies some of the costs treated as indirect costs under absorption costing as direct costs.

Assuming no other changes in the CVP relationship, which of the following will decrease the breakeven point in units?

An increase in the selling price per unit.

Aqua Company produces two products - Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta is based on customer orders and is custom designed. Also, 55% of Beta's cost is shared between design and setup costs, while Alpha's major portions of costs are direct costs. Aqua is using a single cost pool to allocate indirect costs with the number of units sold as the cost driver. Which of the following statements is true of Aqua?

Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs.

On January 1, Lake Co. increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Lake's budgeted breakeven point and budgeted margin of safety?

B/E: Increase Margin of Safety: Decrease

Costs support the organization as a whole:

Business-sustaining

It is usually difficult to find good cause-and-effect relationships between a cost allocation base and:

Business-sustaining

Once the breakeven point has been reached, operating income will increase by the

Contribution margin per unit for each additional unit sold.

What is the normal effect on the numbers of cost pools and drivers when an activity-based costing system replaces an absorption costing system?

Cost Pools: Increase. Cost Drivers: Increase

Cost-volume-profit analysis allows management to determine the relative profitability of a product by:

Determining the contribution margin per unit and the projected profits at various levels of production.

At the breakeven point, the contribution margin equals total:

Fixed costs

A profitable firm can increase its return on investment by:

Increasing sales revenue and operating expenses by the same percentage.

Which of the following statement is true of Kim's setup costs under traditional costing?

L3 pack is overcosted by $5,500. $18,750 under direct labor-hours - $13,200 under setup-hours = $5,500.

___________ breakeven sales in terms of dollar sales volume when fixed costs and contribution margin are lower and will have ___________ dollar profit once the breakeven point in dollar sales volume is exceeded.

Lower, lesser

When an organization is operating above the breakeven point, the degree of or amount that revenues may decline before losses are incurred is the:

Margin of safety.

A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. Of the following, the most appropriate cost driver for assigning materials handling costs to the various product is:

Number of parts used.

Unit-level cost drivers are most appropriate as an overhead assignment base when:

Only one product is manufactured

Which of the following is a sign that an absorption costing system is being used by a multi-product firm with significant indirect costs?

Operations staff has substantial disagreements with the reported costs of manufacturing and marketing products and services.

In using CVP analysis to calculate expected unit sales, which of the following should be added to fixed costs in the numerator?

Predicted operating income

The costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced:

Product-sustaining costs

ROI is a very popular performance measure used to evaluate corporate segments because it incorporates all of the major ingredients of profitability (revenues, expenses, investment) into a single measure. Under which one of the following combinations of actions would a segment's ROI always increase.

Revenues: Increase Expenses: Decrease Investment: Decrease

If total fixed costs decrease while the selling price per unit and variable costs per unit remain constant, which of the following statements is true?

The contribution margin does not change and the breakeven point decreases.

If the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant, which of the following statements is true?

The contribution margin increases and the breakeven point decreases.

If the sales price per unit increases while the variable cost per unit and total fixed costs remain constant, which of the following statements is true?

The contribution margin increases and the breakeven points decreases.

Which of the following is a reason that has accelerated the demand for improvements to costing systems?

The use of product and process technology has led to an increase in indirect costs and a decrease in direct costs.

CVP analysis assumes over the relevant range that

Total costs are linear

The line that begins at the origin on a CVP graph represents:

Total sales revenues

A well-designed, ABC system helps managers make better decision because information derived from an ABC analysis:

can be used to eliminate nonvalue-added activities.

It is important that product costs reflect the diversity and complexity of the manufacturing process so that:

decision-making based on product cost information is improved.

The goal of Chess Woods newly constructed ABC system is to:

develop the best cost system for an economically reasonable cost

Contribution margin ratio is computed by:

dividing contribution margin by sales revenue.

ABC can eliminate cost distortions because ABC systems:

establish a cause-and-effect relationship with the activities performed and the products manufactured.

Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into:

greater overhead costs for each product line.

ABC systems create:

homogeneous activity-related cost pools

Service companies in particular find great value from ABC because a vast majority of their cost structure is composed of these costs:

indirect

Activity based costing systems differ from traditional costing systems in the treatment of:

indirect costs

The reduction in cost per unit of wooden chess pieces under ABC system is due to difference in allocation of:

indirect costs

Recognizing ABC information is not always perfect because:

it balances the need for better information against the costs of creating a complex system.

Company A has a higher margin of safety while Company B has a lower margin of safety. Company A would be considered ___________ Company B when considering only margin of safety.

less risky than

Product-cost cross-subsidization:

means that if a company undercosts at least one of its products, it will overcost at least one of its other products.

For a company with diverse products, undercosting overhead of a product will lead to

misallocating indirect costs of another product.

Lavender Company is a logistics company and has recently implemented ABC system. Using activity-based information, it decides to reduce the bulkiness of the packages delivered, thereby reducing freight and storage costs. This suggest that ABC system helps managers in decisions about:

process-improvement

All else being equal, a company with a low operating leverage will have

relatively high variable costs

According to an ABC system, S5 uses a disproportionately:

smaller amount of batch-level costs than would be reported under an absorption costing system.

ABC and traditional systems are most similar in:

the treatment of business-level costs

A single indirect-cost rate distorts product cost because:

there is an assumption that all support activities affect all products in the same way.

One reason for assigning selling and distribution costs to product for analytical purposes is:

to ensure that all product-related costs are considered.

All else being equal, given this change in the cost allocation system:

total costs remained unchanged

According to an ABC system, CP8, the product with 45 more minutes in batch set up time with the same exact indirect cost of $100, is ________ under the traditional system.

undercosted

Assume a company with material batch-related and product-sustaining costs use absorption costing. When comparing products manufactured in small batches and in small annual volumes with products manufactured in large batches and in large annual volumes, the products manufactured in small batches will probably be:

undercosted

If the fixed costs attendant to a product increase while variable costs and sales price remain constant, what will happen to contribution margin and breakeven point?

CM: Unchanged B/E: Increase

To the left of the breakeven point on a CVP graph, the area between the total expense line and the sales revenue line represents which of the following?

Operating loss

A company increased the selling price of its product form $1 to $1.10 a unit when total fixed costs increased from $400,000 to $480,000 and variable cost per unit remained unchanged. How will these changes affect the breakeven point?

The effect cannot be determined from the information given.

ABC allocates all costs as if they were ________ because the amounts allocated are a function of the use of activity cost drivers.

variable