Acct241 Test 1

Brownstone Company's contribution margin ratio is 30%. If Brownstone's sales revenue is $100 greater than its break-even sales in dollars, its net income a. Will be $30. b. Will be $70. c. Cannot be determined without knowing fixed costs. d. Will be $100.

a

Companies assign manufacturing overhead to work in process on an estimated basis through the use of a(n) a. Predetermined overhead rate. b. Assigned overhead rate. c. Actual overhead rate. d. Previous year's overhead rate.

a

Cost accounting involves the measuring, recording, and reporting of a. Product costs. b. Future costs. c. Managerial accounting decisions. d. Manufacturing processes.

a

Factory Labor is a(n) a. Temporary account b. Control account c. Subsidiary account d. Expense account

a

If actual overhead is greater than applied manufacturing overhead, then manufacturing overhead is: a. Underapplied. b. Overapplied. c. A loss on the income statement under "Other Expenses and Losses." d. Considered a miscellaneous expense.

a

Which of the following are considered to be management's three broad functions? a. Planning, directing, and controlling b. Planning, calculating, and controlling c. Conducting, directing, and manufacturing d. Controlling, directing, and manufacturing

a

Which of the following costs are classified as a period cost? a. Wages paid to a cost accountant department supervisor b. Wages paid to an assembly worker c. Wages paid to a factory custodian d. Wages paid to a production department supervisor

a

Which of the following is NOT a manufacturing cost? a. Factory maintenance b. Advertising cost c. Wheels that are being installed on new automobiles being manufactured d. Wages of assembly workers

a

Which of the following activities adds value to a product or service? a. Moving parts from machine to machine b. Shaping a piece of metal on a lathe c. Storage of raw materials d. Providing warranty service on products sold

b

Which of the following is NOT an element of manufacturing overhead? a. Plant manager's salary b. Sales manager's salary c. Factory repairman's wages d. Product inspector's salary

b

Which of the following is a relevant facility-level cost driver for air conditioning costs in a chiropractor's office? a. Direct labor hours b. Floor space c. Direct material cost d. Machine hours

b

Which of the following is an important element in successfully operating a just-in-time approach to production? a. Utilizing the lowest cost suppliers. b. A multi-skilled workforce. c. All of these are important elements. d. Completing products in the quickest manner without regard for quality.

b

Which of the following is not a facility-level activity? a. Plant management b. Product design c. Training d. Personnel administration

b

Which of the following is not an important element of just-in-time processing? a. Dependable suppliers b. Multiple product lines c. A total quality control system d. A multi-skilled workforce

b

Which of the following activities adds value to a product or service? a. Providing warranty service on products sold. b. Storage of raw materials. c. Shaping a piece of metal on a lathe. d. Moving parts from machine to machine.

c

Which of the following is a batch-level activity? a. Product design b. Engineering changes c. Purchase ordering d. Assembling

c

Which of the following is a limitation of activity-based costing? a. Only manufacturing companies can use it. b. It does not lead to better management decisions. c. Arbitrary allocations of overhead costs may continue. d. It can only be used to improve product costing.

c

An activity that adds costs to the product but does not increase its market value is a a. Non-value-added activity. b. Value-added activity. c. Cost driver. d. Cost-benefit activity.

a

Managerial accounting applies to all types of businesses, including service, merchandising, and manufacturing, as well as to all forms of business organizations True or False

t

Manufacturing overhead consists of costs that are indirectly associated with the manufacture of the finished product. True or False

t

Margin of safety is the difference between actual sales and sales at the break-even point. True or False

t

Target net income is an income objective for individual product lines set by management. True or False

t

The amount of income or loss at each level of sales can be derived from the total sales and total cost lines in a CVP graph. True or False

t

The margin of safety ratio is equal to the margin of safety in dollars divided by the actual or (expected) sales. True or False

t

The range over which a company expects to operate during a year is called the relevant range of the activity index. True or False

t

The two major steps in the job order cost flow are 1) accumulating the manufacturing costs incurred and 2) assigning the accumulated costs to the work done. True or False

t

Two benefits of ABC are that it leads to better management decisions and increases the accuracy of overhead cost allocations. True or False

t

Under the just-in-time inventory method, goods are manufactured or purchased just-in-time for use. True or False

t

For purposes of CVP analysis, mixed costs must be classified into their fixed and variable elements. True or False

t

Activity-based costing is most appropriate to use when labor costs are a(n) ___________ proportion of total product costs and the manufacturing process is __________. a. Decreasing, complex b. Increasing, complex c. Small, uncomplicated d. Large, uncomplicated

a

As compared to high-volume products, low-volume products a. Require more special handling. b. Require less machine setups. c. Are frequently responsible for less overhead costs. d. None of these answers are correct.

a

If the amount of underapplied overhead is immaterial, companies will debit underapplied overhead to a. Cost of goods sold. b. Finished goods inventory. c. Manufacturing overhead. d. Work in process inventory.

a

In service industries a. A larger proportion of overhead costs are company-wide costs. b. Activity cost pools cannot be identified. c. Activities cannot be labeled as value-added or non-value-added. d. The overall objective of ABC is different than in manufacturing industries.

a

Raw materials are assigned to a job when a. The materials are issued by the materials storeroom. b. The job is sold. c. The materials are purchased. d. The materials are received from the vendor.

a

The predetermined overhead rate is a. Determined at the beginning of the year. b. Not calculated until actual overhead costs are incurred. c. Determined at the end of the current year. d. Determined on a moving average basis throughout the year.

a

The source documents for assigning costs to job cost sheets are a. Materials requisition slips, time tickets, and the predetermined overhead rate. b. Invoices, time tickets, and the predetermined overhead rate. c. Materials requisition slips, time tickets, and the actual overhead costs. d. Materials requisition slips, payroll register, and the predetermined overhead rate.

a

What overhead allocation basis is used by many companies with automated manufacturing processes to reduce product cost distortions? a. Machine hours b. Direct materials c. Direct labor d. Units produced

a

When is it appropriate to use direct labor as a basis for assigning overhead costs to products? a. When direct labor constitutes a significant part of total product costs. b. When the manufacturing process is highly automated. c. When the manufacturing process is complex. d. When there is a low correlation between direct labor and changes in overhead costs.

a

Which of the following statements is false concerning the use of ABC in service industries? a. When using ABC for service industries, special methods must be used to identify cost pools and cost drivers due to the unique nature of the services offered. b. The notion regarding eliminating as many non-value-added activities as possible applies equally to manufacturers and service providers. c. In most service industries, a large portion of overhead costs are company-wide costs. d. All of the statements are true concerning the use of ABC in service industries.

a

Which one of the following is a name for the range over which a company expects to operate? a. Relevant range b. Mixed range c. Fixed range d. Variable range

a

Which of the following managerial accounting techniques attempts to allocate manufacturing overhead in a more meaningful fashion? a. Balanced scorecard. b. Activity-based costing. c. Total-quality management. d. Just-in-time inventory.

b

Which of the following would not be an overhead activity cost pool? a. Shipping b. Direct materials c. Packaging d. Inspecting and testing

b

After passage of the Sarbanes-Oxley Act of 2002 a. Reports prepared by managerial accountants must be audited by CPAs b. CEOs and CFOs must certify that financial statements give a fair presentation of the company's operating results c. The audit committee, rather than top management, is responsible for the company's financial statements d. Reports prepared by managerial accountants must comply with generally accepted accounting principles (GAAP)

b

All of the following are distinguishing features of managerial accounting EXCEPT a. Reports pertaining to subunits of the entity b. Independent audits c. Internal users d. To provide special-purpose information

b

CVP analysis considers the interrelationships among all of the following components except a. Variable cost per unit. b. Fixed costs per unit. c. Unit selling prices. d. Volume/level of activity.

b

Cost of goods available for sale is reported on the income statement of a. Neither a manufacturing company nor a merchandising company. b. A merchandising company and a manufacturing company. c. A merchandising company but not a manufacturing company. d. A manufacturing company but not a merchandising company.

b

Examples of recent trends in the economic environment of U.S. businesses are a. Decreasing global competition and a shift toward providing services rather than goods. b. Increasing global competition and a shift toward providing services rather than goods. c. Decreasing global competition and a shift toward providing services rather than goods. d. Increasing global competition and a shift toward providing goods rather than services.

b

If a traditional costing system allocates too much overhead to one product, the firm is likely to experience which of the following problems? a. The firm may be underpricing the product b. The firm may lose market share to competitors c. An increase in the number of defective products produced d. The product is in danger of becoming obsolete

b

Manufacturing overhead is underapplied if a. Actual overhead is less than applied. b. Actual overhead is greater than applied. c. The predetermined rate equals the actual rate. d. Actual overhead equals applied overhead.

b

One key difference appears when comparing the income statements of a manufacturing company to a merchandising company. What is that difference? a. Cost of goods manufactured is subtracted from sales to get gross profit on a manufacturing income statement, while cost of goods purchased is subtracted from sales to get gross profit on a merchandising income statement. b. Manufacturing companies use cost of goods manufactured and merchandising companies use cost of goods purchased. c. Cost of goods sold equals the cost of merchandise purchased for a merchandising company, while cost of goods sold equals the cost of raw materials for a manufacturing company. d. Manufacturing companies use work in process, raw materials, and finished goods inventory balances to calculate cost of goods sold, while merchandising companies use only merchandise inventory balances.

b

Required sales in dollars to meet a target net income is computed by dividing a. Fixed costs plus target net income by contribution margin per unit. b. Fixed costs plus target net income by contribution margin ratio. c. Variable costs plus target net income by contribution margin per unit. d. Total costs plus target net income by contribution margin ratio.

b

The flow of costs in a job order cost system a. Generally follows a LIFO cost flow assumption. b. Involves accumulating manufacturing costs incurred and assigning the accumulated costs to work done. c. Cannot be measured until all jobs are complete. d. Measures product costs for a set time period.

b

The relevant range is a. The range of activity in which variable costs will be curvilinear. b. The range over which the company expects to operate during a year. c. The range of activity in which fixed costs will be curvilinear. d. Usually from zero to 100% of operating capacity.

b

Under just-in-time processing a. Finished goods are completed just in time to be sold. b. All of these. c. Raw materials are received just in time for use in production. d. Subassembly parts are completed just in time for use in assembling finished goods.

b

What is the primary benefit of activity-based costing? a. More cost pools b. More accurate product costing c. The cost of implementation d. Arbitrary allocations of overhead costs

b

When the company assigns factory labor costs to jobs, the direct labor cost is debited to a. Manufacturing Overhead. b. Work in Process Inventory. c. Direct Labor. d. Factory Labor.

b

Which of the following is the third step in applying an activity-based costing system? a. Identify and classify the major activities involved in the manufacture of each product. b. Compute the overhead rate for each cost driver. c. Assign manufacturing overhead costs for each cost pool to the products. d. Identify the appropriate cost driver.

b

Which one of the following is a characteristic that job-order cost systems and process cost systems have in common? a. Both systems assign costs to specific jobs. b. They both use perpetual inventory systems. c. Both systems are used for custom made, unique products. d. The objective is to determine the efficiency of production.

b

Which one of the following is a trend in industry? a. Large batch processing in manufacturing is becoming more common. b. The U.S. economy has shifted toward an emphasis on providing services. c. The majority of workers in the U.S. are in manufacturing which is growing substantially. d. Companies now have larger amounts of inventories than in the past.

b

Which one of the following is not an assumption of CVP analysis? a. Volume or level of activity affects costs. b. Profit for the period is constant. c. Costs can be classified as variable or fixed. d. The sales mix is constant.

b

Why is determination of a relevant range important? a. Most companies operate at 100% of capacity. b. Cost behavior outside the relevant range may be distorted. c. Costs outside this range cause losses to companies. d. Costs that occur outside this range are assumed to be linear.

b

A CVP graph does not include a a. Total cost line. b. Sales line. c. Variable cost line. d. Fixed cost line.

c

A company is more likely to use a job costing system if a. Its production is continuous. b. It manufactures a large volume of similar products. c. It manufactures products with unique characteristics. d. It uses a periodic inventory system.

c

A process cost system would be used for all of the following EXCEPT the a. Manufacturing of cereal b. Refining of petroleum c. Printing of wedding invitations d. Production of automobiles

c

Cost accounting involves each of the following except the a. Recording of product costs. b. Measuring of product costs. c. Processing of product costs. d. Reporting of product costs.

c

During June, McDougal, Inc. produced a job consisting of 100 widgets with a job cost of $2,200. Which of the following is one effect that occurs when the company sells half of the products for $1,300? a. Finished Goods Inventory increases. b. Raw Materials inventory decreases. c. Cost of Goods Sold increases. d. Work in Process Inventory decreases.

c

For a manufacturing firm, cost of goods available for sale is computed by adding the beginning finished goods inventory to a. Cost of goods purchased b. Net purchases c. Cost of goods manufactured d. Total manufacturing costs

c

In Mynex Company, Job No. 26 is completed at a cost of $4,500 and later sold for $7,000 cash. A correct entry is a. Debit Finished Goods Inventory $7,000 and credit Work in Process Inventory $7,000. b. Debit Cost of Goods Sold $7,000 and credit Finished Goods Inventory $7,000. c. Debit Finished Goods Inventory $4,500 and credit Work in Process Inventory $4,500. d. Debit Accounts Receivable $7,000 and credit Sales $7,000.

c

In recording the issuance of raw materials in a job order cost system, it would be incorrect to a. Debit Work in Process Inventory. b. Credit Raw Materials Inventory. c. Debit Finished Goods Inventory. d. Debit Manufacturing Overhead.

c

Managerial accounting a. Is governed by generally accepted accounting principles b. is limited to cost data c. places emphasis on special-purpose information d. pertains to the entity as a whole and is highly aggregated

c

One of the following is not involved in CVP analysis. That factor is a. Sales mix. b. Volume or level of activity. c. Fixed costs per unit. d. Unit selling prices.

c

The entry when direct factory labor is assigned to jobs is a debit to a. Factory labor and a credit to manufacturing overhead. b. Factory labor and a credit to work in process inventory. c. Work in process inventory and a credit to factory labor. d. Manufacturing overhead and a credit to factory labor.

c

The mathematical equation for computing required sales to obtain target net income is: Required sales = a. No correct answer is given. b. Variable costs + target net income. c. Variable costs + fixed costs + target net income. d. Fixed costs + target net income.

c

What is the primary barrier to using activity-based costing in a service company? a. A limited number of arbitrary allocation decisions. b. A large number of cost pools. c. A large portion of overhead costs are company-wide costs. d. A shortage of potential cost drivers.

c

Which account is credited when a job is completed? a. Sales Revenue. b. Cost of Goods Sold. c. Work in Process Inventory. d. Finished Goods Inventory.

c

Which of the following is a trend in managerial accounting? a. Overhead costs are becoming smaller so not as much emphasis on them is needed b. There has been less emphasis on quality due to growth in the size of a company's number of employees c. Large machines have been replaced with smaller, more flexible ones d. Companies are holding more and more inventory items on hand to reduce costs

c

Which of the following should not be included as part of the cost pool of machine setups? a. Supplies needed in changing machines from one production setting to another. b. Depreciation on machines and parts used for different setups. c. Cost of the accounts payable supervisor's salary. d. Salaries of those supervising machine operators.

c

Which of the following statements is true about managerial accounting? a. It pertains to a business as a whole b. It must be prepared using generally accepting accounting principles c. It provides more detailed information than financial accounting does d. It is primarily for internal users such as stockholders and managers

c

Which of the following would you find on the income statement of a manufacturing company, but NOT on the income statement of a merchandising company? a. Work in process b. Raw materials c. Cost of goods manufactured d. Cost of goods purchased

c

Which one of the following is NOT an assumption of cost-volume-profit analysis? a. The behavior of costs is linear throughout the relevant range. b. All costs can be classified as either variable or fixed. c. Changes in activity and sales mix are the only factors that affect costs. d. All units produced are sold.

c

As the complexity of a product's manufacturing operation increases, the number of activities and cost drivers used in an activity-based cost system will likely a. Decrease. b. Stay about same. c. Vary randomly. d. Increase.

d

At the end of an accounting period, a company using a job costing system calculates the cost of goods manufactured a. From the Cost of Goods Sold account. b. From the job cost sheet. c. By adding direct materials used, direct labor incurred, and manufacturing overhead incurred. d. From the Work in Process Inventory account.

d

At the end of the year a company has a $1,200 debit balance in Manufacturing Overhead. If this amount is considered immaterial, the company will a. Make an adjusting entry by debiting Manufacturing Overhead Expense for $1,200 and crediting Manufacturing Overhead for $1,200. b. Make no adjusting entry because differences between actual overhead and the amount applied are a normal part of job costing and will average out over the next year. c. Make an adjusting entry by debiting Manufacturing Overhead Applied for $1,200 and crediting Manufacturing Overhead for $1,200. d. Make an adjusting entry by debiting Cost of Goods Sold for $1,200 and crediting Manufacturing Overhead for $1,200.

d

Donatello Co. has identified an activity cost pool to which it has allocated estimated overhead of $9,600,000. It has determined the expected use of cost drivers for that activity to be 800,000 inspections. Widgets require 200,000 inspections, Gadgets 150,000 inspections, and Targets 450,000 inspections. How much is the overhead assigned to each product? a. Widgets $200,000, Gadgets $150,000, Targets $450,000 b. Widgets $3,200,000, Gadgets $3,200,000, Targets $3,200,000 c. Widgets $3,200,000, Gadgets $1,600,000, Targets $4,800,000 d. Widgets $2,400,000, Gadgets $1,800,000, Targets $5,400,000

d

Each of the following is a limitation of activity-based costing except that a. Some arbitrary allocations continue. b. It is more complex than traditional costing. c. It can be expensive to use. d. More cost pools are used.

d

The CVP income statement a. Will reflect a different net income than the traditional income statement. b. Is distributed internally and externally. c. Classifies costs by functions. d. Discloses contribution margin in the body of the statement.

d

The formula for computing the predetermined manufacturing overhead rate is estimated annual overhead costs divided by an expected annual operating activity, expressed as a. Direct labor cost. b. Direct labor hours. c. Machine hours. d. Any of the above.

d

Variable costs are costs that a. Vary in total directly and proportionately with changes in the activity level. b. Remain the same per unit at every activity level. c. Neither of the above. d. Both (a) and (b) above.

d

Which of the following answer choices lists the three manufacturing costs? a. Indirect materials, indirect labor, and factory-related costs b. Work in process, finished goods, and cost of goods sold c. Raw materials, work in process, and finished goods d. Direct materials, direct labor, and manufacturing overhead

d

Which of the following costs would a computer manufacturer include in manufacturing overhead? a. The cost of the disk drives b. The wages earned by computer assemblers c. The cost of the memory chips d. Depreciation on testing equipment

d

Which of the following costs would a computer manufacturer include in manufacturing overhead? a. The cost of the memory chips b. The wages earned by computer assemblers c. The cost of the disk drives d. Depreciation on testing equipment

d

Which of the following is an overhead activity cost pool for a manufacturer? a. Direct materials b. All of these are considered overhead activity cost pools for a manufacturer. c. Direct labor d. Setting up machines

d

Which of the following is likely to contain a linear relationship between costs and activities? a. Small-scale operations. b. The entire range of possible activity. c. Full capacity. d. Relevant range.

d

Which of the following is used to eliminate inventories? a. A push approach b. A cost-pool approach c. A value-added approach d. A pull approach

d

Which one of the following activities for a window cleaning service is a value-added activity? a. Verifying credit card information upon receiving payment from a customer. b. Repairing window cleaning equipment. c. Giving a potential customer an estimate of cost to clean windows in a three bedroom home. d. Cleaning plate glass windows for a customer.

d

Which one of the following correctly describes a document used in recording job cost sheet information? a. An invoice from a supplier for receipt of raw materials for jobs. b. A purchase order to order raw materials from suppliers. c. Paychecks for workers who assemble products. d. A materials requisition to request materials from the company warehouse.

d

Why do companies, using job order costing to estimate manufacturing overhead costs, allocate them to individual jobs and products? a. The actual overhead costs are not determinable. b. It is more accurate to estimate costs. c. Manufacturing overhead is a period cost, not a job or product cost. d. It enables the company to determine the approximate cost of each job as it gets completed.

d

Companies generally list manufacturing inventories in order of completion--Raw materials, work in process, and finished goods. True or False

f

Companies generally list manufacturing inventories in the order of completion--raw materials, work in process, and finished goods. True or False

f

Indirect material costs are easily traced to products because of their physical association with the finished product. True or False

f

JIT is based on a push-approach. True or False

f

Labor costs are debited to Work in Process Inventory when they are incurred. True or False

f

Manufacturers compute cost of goods sold by adding the beginning finished goods inventory to the cost of goods purchased and subtracting the ending finished goods inventory. True or False

f

Planning is the process of keeping the company's activities on track True or Fase

f

Planning is the process of keeping the company's activities on track. True or False

f

The contribution margin ratio is computed by multiplying contribution margin by unit selling price. True or False

f

When companies prepare a detailed CVP income statement, they provide more detail about specific variable costs but NOT fixed cost items. True or False

f

At the break-even point, contribution margin equals total variable costs. True or False

t

Cost-volume-profit analysis assumes that changes in activity are the only factors that affect costs. True or False

t

Activity-based costing is used in service industries as well as manufacturing. True or False

t