ACCT 210 FINAL EXAM
In a job order cost system, factory labor costs incurred are debited to which account?
Factory Labor
breakeven point in units
Fixed Costs / Unit Contribution Margin
What is contribution margin?
The amount available to cover fixed costs and contribute to profits.
Profitability Index
Net Present Value / Investment Required
Predetermined Overhead Rate formula
estimated total manufacturing overhead cost/expected annual operating activity
A high degree of operating leverage:
exposes a company to greater earnings volatility risk.
A company is more likely to use a job costing system if
it manufactures products with unique characteristics.
for fixed costs, when activity declines,
its cost per unit increases
A cost system that identifies costs by batch rather than a set time period
job order cost system
A cost system that is best for producing items with unique, distinguishing features
job order cost system
Time-and-material pricing would most likely be used by a:
lawn care provider service industry
a variance is favorable if actual costs are
less than standard costs
Compared to budgeting, long-range planning generally has the:
longer time period
Using a higher discount rate to calculate the net present value of a project will
make it less likely that the project will be accepted . resulting NPV will be lower
the essentials of effective budgeting includes
management acceptance, research and analysis, sound organizational structure
a sales budget is
management's best estimate of sales revenue for the year
budgetary control involves
modifying future plans, analyzing differences, determining differences between actual and planned results
The basic rule in a sell or process further decision is to process further as long as the incremental revenue is:
more than the incremental processing costs
A post-audit of an investment project should be performed:
on all significant capital expenditure projects
A budget can be used as a basis for evalutaing
performance
standard costs are
predetermined unit costs which companies use as measures of performance
target cost related to price and profit means that
price and desired profit must be determined before costs. The selling price and the desired profit must be decided before costs are determined.
a total materials variance is analyzed in terms of
price and quantity variances
A cost system that identifies costs with a set time period is a
process system
Fixed manufacturing overhead costs are recognized as:
product costs under absorption costs
the direct labor budget and the manufacturing overhead budget are prepared directly from the
production budget
A responsibility center that incurs costs and also generates revenues is a(n)
profit center
the luggage department of a macy's store is a
profit center
A positive net present value means that the:
project's rate of return exceeds the required rate of return.
controllable margin is defined as
contribution margin less controllable fixed costs
to evaluate the performance of a profit center manager, upper management needs detailed information about
controllable costs and revenues
performance reports for cost centers compare actual
controllable costs with flexible budget data
in a responsibility report for a profit center, controllable fixed costs are deducted from contribution margin to show
controllable margin
Return on investment is calculated by dividing
controllable margin by average operating assets
In the formula for ROI, the factors for controllable margin and operating assets are, respectively:
controllable margin dollars and average operating assets
The most common method used to establish transfer prices is the
cost based transfer pricing approach
the assembly department of a luggage manufacturer is a
cost center
the human resources department of a macy's store is a
cost center
responsibility centers include
cost centers, profit centers, investment centers
a cost center only incurs
costs and does not directly generate revenue
Overapplied overhead is
credited to COGS
the total overhead variance is the difference between
actual overhead costs and overhead costs applied based on standard hours allowed
Manufacturing overhead is underapplied if
actual overhead is greater than applied
the formula for computing the total overhead variance is
actual overhead less overhead applied
An unfavorable materials quantity variance would occur if
actual pounds of materials used were greater than the standard pounds allowed
In a make or buy decision, opportunity costs are:
added to the make total cost.
the primary objective of just-in-time processing is to
eliminate or reduce all manufacturing inventories
at the break even point, contribution margin
equals fixed costs
Activity Based Overhead Rate formula
estimated overhead per activity / expected use of cost drivers per activity
a manager of an investment center can improve ROI by
reducing variable and/or controllable fixed costs
Operating Leverage
refers to the extent to which a company's net income reacts to a given change in sales
Generally Accepted Accounting Principles allow a company to
report inventory and cost of goods sold at standard costs as long as there are no significant differences between actual and standard cost
break-even point
required sales - VC - FC= net income of 0$
normal standards allow for
rest periods, machines breakdowns, and setup time
The following budgets are used in preparing the budgeted income statement
sales budget, selling and Administrative budget, direct labor budget
a production manager in a manufacturing company would most likely receive a
scrap report
Income statements prepared internally for management often show cost of goods sold at the standard cost and variances are
separately disclosed
the total materials variance is equal to the
sum of the materials price variance and the materials quantity variance
In a decision to retain or replace equipment, the book value of the old equipment is a (an):
sunk cost
In a competitive, common-product environment, a seller would most likely use:
target costing
a project should be accepted if its internal rate of return exceeds
the company's required rate of return
budgeted income statement is the
the end-product of the operating budgets.
In order to maximize profits when limited resources are available a company should concentrate on the producing products with:
the highest contribution margin per unit of limited resource.
When a company has a limited resource, it should apply additional capacity of that resource to providing more units of the product or service that has:
the highest unit contribution margin of that limited resource.
raw materials are assigned to a job when
the materials are issued by the materials storeroom.
To assign overhead costs to an individual product, the activity-based overhead rate is multiplied by
the number of cost drivers used by product
If $30,000 direct materials are requisitioned for Job No. 2453 and $5,000 of indirect materials are requisitioned for general use, the debit to Work in Process Inventory should be
$30,000 Direct materials
Labor Price Variance
(AH x AR) - (AH x SR)
The formula for the materials quantity variance (MQV) is
(AQ × SP) - (SQ × SP)
The formula for the materials price variance (MPV) is
(AQxAP) - (AQxSP)
Absorption Costing
A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.
Variable Costing
A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.
Standard cost accounting system
A double-entry system of accounting in which standard costs are used in making entries, and variances are recognized in the accounts.
Any event, action, transaction, or work sequence that incurs cost when producing a product or providing a service
Activity
A costing system that allocates overhead
Activity Based Costing
The overhead attributed to a distinct type of activity or related activities
Activity Cost Pool
Total Overhead Variance
Actual Overhead - Applied Overhead
the format of a cash budget is
Beginning cash balance + Cash receipts - Cash disbursements +/- Financing = Ending cash balance.
What budgeted amounts appear on the flexible budget report?
Budgeted amounts for the actual activity level achieved.
Any factor or activity that has a direct cause-effect relationship with the resources consumed.
Cost Driver
Usually, under- or overapplied overhead is considered to be an adjustment to
Cost of Goods sold
In a job order cost system, indirect materials used are debited to which account?
Manufacturing Overhead
over applied overhead
Manufacturing overhead has a credit balance, Overhead assigned to work in process is greater than overhead incurred
underapplied overhead
Manufacturing overhead has a debit balance, Overhead assigned to work in process is less than overhead incurred
Margin of Saftey Ratio =
Margin of Saftey / Planned Sales
What is the order of involvement of the following parties in capital budgeting authorization process?
Plant Managers, Capital Budget Committee, Officers, Board of Directors
Determine Predetermined Overhead Rate: Estimated annual manufacturing overhead costs: $400,000. Estimated annual machine hours: 100,000 machine hours.
Predetermined overhead rate $4 per machine hour. $400,000/$100,000
In a job order cost system, raw materials purchased are debited to which account?
Raw Materials Inventory
Contribution Margin
Sales - Variable Costs
Which one of the following is the format of a CVP income statement?
Sales − Variable costs − Fixed costs = Net income.
cost plus pricing means that
Selling price = Cost + (Markup percentage × Cost).
Contribution Margin Ratio
Unit Contribution Margin / Unit Selling Price
Managment 's decision making process
The order of the steps in the decision process is (1) determine and evaluate possible courses of action, (2) make the decision, and (3) review the results of decision.
incremental analysis
The process of identifying the financial data that changes under alternative courses of action.
what is the difference between a budget and a standard?
a budget is a total amount while a standard expresses only a unit amount
The accounting department of a manufacturing company is an example of
a cost center
an example of an intangible benefit provided by a capital budgeting project is:
a decrease in customer complaints regarding poor quality
controllable costs for responsibility accounting purposes are those costs that are directly influenced by
a given manager within a given period of time
The setting of standards is
a management decision
The budget for a merchandiser differs from a budget for a manufacturer because:
a merchandise purchases budget replaces the production budget, the manufacturing budgets are not applicable
a static budget is
a projection of budget data at a single level of activity
When units produced are greater than units sold, net income will be higher under
absorption costing since more fixed costs will remain in inventory
If the Net Present value is equal to zero, do we accept or reject?
accept proposal
Under a traditional costing system, a single predetermined overhead is used which can
be based on direct labor
In most cases, not-for-profit entities:
begin the budgeting process by budgeting expenditures rather than receipts.
In using variance reports, management looks for
both favorable and unfavorable variances that exceed a predetermined quantitative measure such as a percentage or dollar amount
In making business decisions, management ordinarily considers:
both financial and nonfinancial information
the point where total sales equal total variable plus total fixed costs.
break even point
Standards differ from budgets in that:
budgets are a total amount and standards are a unit amount
depending on nature of the report, budget reports are prepared
daily, weekly, monthly
Underapplied overhead is
debited to COGS
Capital Budgeting Decision examples
decision to build a new plant, decision to renovate existing facility, decision to buy piece of machinery
the formula for the production budget is budgeted sales in units plus
desired ending finished goods units less beginning finished goods units
the budgeted balance sheet is
developed from the budgeted balance sheet for the preceding year and the budgets for the current year.
total overhead variance is the
difference between actual overhead costs and overhead costs applied based on standard hours allowed
fixed costs that relate specifically to one center and are incurred for the sole benefit of that center are
direct fixed costs
The direct labor quantity standard is sometimes called the
direct labor efficiency standard
Under responsibility accounting, the evaluation of a manager's performance is based on matters that the manager:
directly controls
if a project has intangible benefits whose value is hard to estimate, the best thing to do is
either include a conservative estimate of their value or ignore their value in initial net present value calculation but then estimate whether their potential value is worth at least the amount of net present value deficiency
A static budget is useful in controlling costs when cost behavior is
fixed
formula for overhead volume variance
fixed overhead rate x (normal capacity hours - standard hours allowed)
normal standards allow
for rest periods, machine breakdowns and setup time
net income will be
greater if more higher-contribution margin units are sold than lower-contribution margin units.
A company with high operating leverage:
has a greater proportion of fixed costs to variable costs.
The margin of safety ratio is:
higher for a company with lower operating leverage.
Net income computed under absorption costing will be:
higher than net income computed under variable costing when units produced are greater than units sold.
Alternative name for discount rate
hurdle rate, required rate of return and cutoff rate
standards based on the optimum level of performance under perfect operating conditions are
ideal standards
responsibility reports for cost centers
include only controllable costs
The decision rule in a sell-or-process-further decision is: process further as long as the incremental revenue from processing exceeds:
incremental processing costs.
variable costing is useful
internal reporting services
A nike store at an outlet mall is an
investment center
activity based costing
is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers.
What are two weakness of cash payback approach?
it ignores the time value of money and ignores useful life of alternative projects
net income under absorption costing is higher than net income under variable costing when
the number of units produced exceeds number of units sold
break-even point
the point at which the costs of producing a product equal the revenue made from selling the product
a budget is
the primary method of communicating agreed upon objectives throughout an organization
a distinguishing characteristic of an investment center is that
the profitability of the center is related to the funds invested in the center
relevant range is
the range over which the company expects to operate during a year.
When a company uses time-and-material pricing, the material loading charge is expressed as a percentage of:
the total estimated costs of parts and materials for the year. In time-and-material pricing, the material loading charge is expressed as a percentage of the total estimated costs of parts and materials for the year.
variances are the differences between
total actual costs and total standard costs
Margin of Safety in Dollars
total budgeted (or actual) sales - break even sales
The formula for computing the direct labor budget is to multiply the direct labor cost per
total required direct labor hours
If actual costs are greater than standard costs, there is a(n)
unfavorable variance
What type of cost remains the same per unit at every level of activity?
variable cost
the total overhead variance is the difference between
what was actually incurred and overhead applied