ACCT 2020 EXAM 2 STUDY

When units produced are less than units sold, net operating income computed using the absorption costing approach is _____ the net operating income computed using the variable costing approach.

Less than

Which of the following does NOT describe a manager increasing the capacity of the bottleneck?

Tightening the constraint

a shift in the sales mix from high-margin items to low-margin items can cause total profit to _________.

decrease

Target cost is determined by subtracting the ________ from the anticipated selling price.

desired profit

The sensitivity of unit sales to changes in price is called ________.

elasticity of demand

Traceable fixed costs should be separated from common fixed costs to:

enable the calculation of a segment margin.

two common management reports prepared with ABC data are _________ and ___________.

product profitability reports, customer profitability reports

High Roller Inc. is trying to decide whether to buy a private jet or to lease one. The finder's fee is incurred only if the private jet is bought. The finder's fee is what type of cost for this decision?

relevant cost

A contribution format income statement is used in segments to:

separates fixed from variable costs and it enables the calculation of a contribution margin.

When analyzing two alternatives which is NOT true?

solating relevant costs gives a different answer than using all costs.

Costs that have been incurred and cannot be eliminated regardless of the alternative chosen are ________.

sunk costs

How does the contribution format income statement vary from a normal income statement?

• The gross margin is replaced in the statement by the contribution margin • Fixed production costs are aggregated lower in the income statement, after the contribution margin.

5 level of activity in ABC:

• customer orders • design changes • order size • customer relations • other

All of the following are differences between ABC and traditional absorption costing except ________.

ABC system may exclude some manufacturing costs, such as organization-sustaining costs

In __________________ costing, fixed manufacturing overhead costs are included as a part of the costs of ____________ inventories.

Absorption, work in process

Activity-based costing accumulates costs for each ___________ .

Activity

How are costs divided among departments in ABC?

Activity and Activity cost pool

___________________ is designed to be used for internal decision making. WHEREAS, ________________ is designed to provide data for external financial reporting.

Activity-Based Costing (ABC), Traditional Absorption Costing

An example of a product-level activity is _____________ .

Advertising

Shipping orders to a grocery store would be considered a(n) ________.

Batch-Level activity

Contribution Margin Ratio

Contribution Margin/Sales

Activity-based costing estimates the costs of the resources consumed by _________.

Cost Objects

Activity-based costing estimates the costs of the resources consumed by ________________.

Cost Objects

In the first-stage allocation of overhead costs, products, customer orders and customers are examples of ________.

Cost Objects

If some products are overcosted and some are undercosted the errors will:

If some products are overcosted and some are undercosted the errors will:

Break-Even Point

Fixed Expenses/Contribution Margin Ratio

First-stage allocations are usually based on the results of __________ .

Interviews with employees

Which of the following is not a strength of TDABC?

It does not require as much data collection (inputs) as ABC.

Period Cost

Fixed Manufacturing Overhead, Fixed Selling and Administrative Expenses, Variable selling and Administrative Expenses

When the units produced exceed the units sold, net operating income computed using the absorption costing approach is ______ the net operating income computed using the variable costing approach.

Greater than

Latitude and private information are two components of ________ influence that impact the determination of selling prices.

customers

the traditional cost system ___________ high volume products and reports a _________ product margin for these products.

overcosts, lower

__________________ cost pool consists of organization-sustaining costs and costs of idle capacity that are not allocated to products and customers.

"Other"

Max, Inc., has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000 respectively. What is the segment margin for the South Division?

$200,000

Bovine Corporation has two divisions: televisions and mobile phones. The mobile phone division has a contribution margin of $600,000. The company's common fixed costs and total traceable fixed costs are $100,000 and $500,000 respectively. What is the segment margin of the mobile phone division, assuming the traceable fixed costs of the television division are $300,000?

$400,000

Absorption Costing

(Fixed Manufacturing Overhead/Units Produced) + Unit Product Cost

Which of the following is considered in the calculation of unit cost under absorption costing?

- Direct labor cost - Variable man. overhead - Fixed man. overhead - Direct material cost - Variable selling and admin. expense

All differences between super-variable costing and absorption costing are explained by:

- the accounting for direct materials and manufacturing overhead costs. - the accounting for direct labor and direct materials. - the accounting for direct labor and manufacturing overhead costs. - the accounting for manufacturing overhead costs.

Which of the following is an allocation base commonly used under the traditional methods for allocation of overhead costs?

Direct Labor Hours

The difference between super-variable costing net operating income and variable costing net operating income is explained by their different approaches to accounting for ________.

Direct Labor costs

Product Cost

Direct Labor, Variable Manufacturing Overhead

Unit Product Cost

Direct Materials + Direct Labor + Variable Manufacturing Overhead

__________________________ are excluded from the overhead costs because the existing cost system can accurately trace direct materials and direct labor to products.

Direct materials and direct labor

Which of the following is the second concept used in business decision making?

Distinguish between relevant and irrelevant costs and benefits.

When the units produced are equal to the units sold, net operating income computed using the absorption costing approach is _______ the net operating income computed using the variable costing approach.

Equal to

T/F: Activity rates are computed in the second-stage allocation in activity-based costing.

F

T/F: All differences between super-variable costing and absorption costing net operating income are explained by the accounting for direct materials costs.

F

T/F: In an ABC system, batch-level activities should be combined with unit-level activities.

F

T/F: It is necessary to compute an activity rate for the "Other" category of costs.

F

T/F: Organization-sustaining overhead costs should be allocated to products just like unit-level and product-level activities.

F

T/F: Product-level activities relate to how many batches are run or units of product are made.

F

T/F: The costs of direct materials and direct labor costs are allocated to cost objects using the first-stage allocation.

F

T/F: The costs of idle capacity should be assigned to products in activity-based costing

F

T/F: The traditional absorption costing method assigns selling and administrative expenses to products.

F

The difference between absorption costing net operating income and variable costing net operating income can be explained by the way these two methods account for ________.

FIXED OVERHEAD COSTS

Activity-based costing uses the ___________ process to divide overhead costs among activity cost pools.

First Stage Allocation

_____________________ is a measure, at a given level of sales, of how a percentage change in sales volume will affect profits.

Operating leverage

Ordering materials, setting up machines, assembling products, and inspecting products are examples of

Overhead cost pools

Fixed costs are expressed as _____________ costs and are not found under variable costing

Period

Advertising is an example of a __________activity.

Product-Level

Which of the following is NOT correct?

Reference value ≥ Value-based price ≥ EVC

Cost of Goods Sold (Absorption)

Sales - Fixed Manufacturing Overhead

Contribution Margin

Sales - Variable Expenses

____________________ best gauge of the long run profitability of a segment because it includes only costs caused by the segment

Segment Margin

Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales?

Special order

T/F: Activity-based costing involves a two-stage allocation in which overhead costs are first assigned to departments and then to jobs.

T

T/F: Batch-level activities should not be combined with unit-level activities.

T

T/F: In activity-based costing, products are charged only for the costs of the capacity they use.

T

T/F: Super-variable costing is a costing method that treats direct labor and manufacturing overhead costs as period costs and includes only direct materials cost in unit product costs.

T

T/F: The activity rates are computed by dividing the total cost for each activity by its total activity.

T

T/F: The super-variable costing net operating income period can be computed by multiplying the number of units sold by the contribution margin per unit and then subtracting total fixed costs.

T

Which of the following is a common mistake made by companies when assigning costs to segments?

They assign the costs of the corporate headquarters buildings to segments because the segments must cover those costs.

What costing approach is best suited for cost-volume-profit analysis?

Variable

Absorption costing income statements ignore ________.

Variable and fixed cost distinctions

Activity-based costing accumulates costs for each __________.

activity

Managers should not rely on absorption costing when ________.

actuals sales is less than estimated sales

Batch-level activities

are performed each time a batch of goods is handled or processed regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch.

Rent paid for the division's regional office.

avoidable

Wages paid to the division's employees who will be downsized if the division is dropped

avoidable

______________________ is the

best gauge of the long run profitability of a segment because it includes only costs caused by the segment

All of the following are relevant to the sell or process further decision except _______.

joint costs incurred before the split-off point

When customers exercise their right to purchase a competitor's product or allocate their spending budget to some other product, this is called ________.

latitude

When the number of units produced is greater than the number of units sold, variable costing net operating income will be ________.

less than absorption costing net operating income

The difference between a product's selling price and its costs is called ________.

markup percentage

The use of absorption costing for segmented income statements results in ______.

omission of upstream and downstream costs.

The potential benefit that is given up when one alternative is selected over another is called ________.

opportunity cost

In evaluating the margin of safety:

the higher the margin of safety ratio, the greater the margin of safety

Cost of machinery purchased for the Orange County division.

unavoidable

Cost of the private jet purchased for the company management's use.

unavoidable

General management expenses allocated to the Orange County division.

unavoidable

the traditional cost system _________ low volume products and reports a ______ product margin for these products.

undercosts, higher

The involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service is called ________.

vertical integration

When a company does not have enough capacity to produce all of the products and sales volume demanded by their customers, this leads to ________.

volume trade-off decisions

How does ABC differ from traditional cost accounting?

• ABC assigns manufacturing and non manufacturing costs to products• ABC does not assign ALL manufacturing costs to products• ABC uses more cost pools

Product costs include:

• Direct materials, • direct labor • variable manufacturing overhead

Period costs include:

• Fixed manufacturing overhead • variable selling and administrative expenses • fixed selling and administrative expenses

ABC limitations:

• Substantial resources required to implement and maintain • Desire to fully allocate all costs to products • Resistance to unfamiliar numbers and reports • Potential misinterpretation of unfamiliar numbers• Does not conform to GAAP. Two costing systems may be needed.

What is the contribution margin?

• The amount remaining from sales revenue after variable expenses have been deducted. • The amount available to cover fixed expenses and then to provide profits for the next period.