Accy 200: Exam 2 Study Guide
The relevant range concept refers to:
A firm's range of activity
Most entities satisfy the accounting criteria for recognizing revenue when:
A product or service is provided
In the t-account cost flow diagram of balance sheet inventory accounts and the income statement cost of goods sold account:
Goods manufactured is debited to finished goods inventory
An income statement organized by cost behavior does not include:
Gross profit
Which of the following terms do not appear on the contribution margin format income statement:
Gross profit
The scattergram allows cost-volume relationships to be visually scanned for outlier observations that should be:
Ignored in the calculation of the cost formula of a mixed cost
The term non controllable cost:
Implies that there is really nothing the manager can do to influence the amount of cost
If they are useful to managers, variances should be reported:
In terms of dollar amounts as promptly as feasible
When a firm's activity requires it to operate at a level above the upper boundary of the relevant range, fixed expenses are likely to:
Increase
Which of the following will increase a company's break-even point?
Increasing variable cost per unit
The method of evaluating financial data that change under different courses of action is called:
Incremental analysis
The key to analyzing a sell as is or process further decision is to determine that:
Incremental revenues exceed incremental costs
Which of the following is part of working capital?
Merchandise inventory
Assume that Kulpa Company has a current ratio of 0.7. Which of the following transactions would increase this ratio?
Purchasing merchandise inventory on credit
____ is a technique used to filter cost information contained in performance reports to each manager within the organization at an appropriate level of detail or summarization:
Responsibility reporting
Working capital includes all of the following accounts except:
Retained earnings
Another term for return on investment is:
Return on assets
Which of the following is a universally accepted measure of profitability?
Return on investment
An individual interested in making a judgement about the profitability of a company should:
Review the trend of the company's ROI for several years
The operating expense budget is based on the:
Sales budget
Contribution margin can be expressed as:
Sales minus variable expenses
The key data element on which the entire budget is based is the:
Sales/revenue forecast
Which of the following is another term for mixed costs?
Semi-variable costs
Asset turnover calculations:
Should be evaluated by observing the turnover trend over a period of time
A budget that has been prepared only once prior to the budget period is called a:
Single-period budget
Income from operations is:
Sometimes used in the ROI calculation
A management decision that would have a long term influence on the operation would be:
Substituting robots for hourly paid production workers
Which of the following cost classifications would not be considered relevant in comparing decision alternatives?
Sunk cost
An entity's current ratio will be influenced by:
The inventory cost flow assumption used
The major difference between the indirect and direct method of a statement of cash flows appears in which of the following activities section(s)?
The operating activities section only
Product costs are inventoried and treated as assets until:
The period in which the products they relate to are sold
Managerial accounting can be best described as:
The preparation and use of accounting information within the organization
Managerial accounting can best be described as:
The preparation and use of accounting information within the organization
The term transfer price refers to:
The price at which a product or service is sold by one segment to another related segment
In the statement of cash flows, depreciation and amortization expense is added back to net income because:
These expenses do not affect cash, but were subtracted in the determination of net income
The part of the variable overhead budget variance due to the difference between actual HOURS required and standard HOURS allowed for work done is called the:
Variable overhead EFFICIENCY variance
The part of the variable overhead budget variance due to the difference between actual variable overhead COST and the standard COST allowed for the actual inputs used is called the:
Variable overhead SPENDING variance
If an asset costs $32,000, has an expected useful life of 10 years, is expected to have a $4,000 salvage value, and generates net annual cash inflows of $8,000 a year, the cash payback period is:
4 years
Most entities satisfy the accounting criteria for recognizing an expense when:
A costs incurred in the revenue generating process
Which of the following is a true statement regarding absorption and/or direct costing?
Absorption costing includes fixed overhead in product costs whereas direct costing does not
Management's use of resources can best be evaluated by focusing on measures of:
Activity
In order to achieve higher quality cost information from the assignment of overhead costs to products manufactured, the use of a predetermined overhead rate is being replaced by:
Activity-based costing
The use of activity-based costing information to support the decision making process is known as:
Activity-based management
A favorable materials quantity variance would occur if:
Actual pounds of materials used were LESS than the standard pounds allowed
How is performance evaluated for a profit center?
Actual segment margin compared to budgeted segment margin
An example of a cost likely to have a fixed behavior pattern is:
Advertising cost
Because of their importance to financial statement users, certain items are not normally ported as separate items on the income statement (especially when significant in amount). Which of the following is not normally reported as a separate item?
Advertising expense
Which of the following costs would be classified as a period cost?
Advertising expense for the product
The concept of matching revenue and expense refers to the fact that:
All costs incurred in the process of earning revenues during a period are recorded as expenses in that period
Which of the following is an accurate statement regarding a statement of cash flows?
All material operating, investing, and financing activities are included
To be most effective, performance reports should be:
All of the above
A sunk cost is a cost that:
All of these
Cost accounting is primarily concerned with:
All of these
The difference between standard and actual cost per unit of input is measured by:
All of these
The term "cost" means:
All of these
Each of a company's two product lines has a different contribution margin ratio. If the company's total sales remain the same but the mix shifts toward selling more of the product with the higher contribution ratio, which of the following is true?
All of these are true
If the net variance of a business using standard costing is significant relevant to total production cost, the net variance should be:
Allocated between WIP and FG inventories and cost of goods sold
ROI can be described or computed in each of the following ways except:
Amount Invested/Amount of Return = ROI
The overhead component of product cost is:
An estimated amount, based on labor hours, machine hours, or some other activity
An excess of cost of goods manufactured over the cost of goods sold for the period represents:
An increase in finished goods inventory
Which of the following would not decrease working capital?
An increase in merchandise inventory
The purchasing agent of an organization acquired some raw materials at a bargain price, even though she knew that their quality was lower than that of the materials customarily used. This action resulted in a favorable raw materials purchase price variance that might very well have been more than an offset by:
An unfavorable raw materials usage variance
Costs may be allocated to a product or activity for many purposes, but care must be exercised when using allocated costs because:
Arbitrarily allocated costs may not behave in the way assumed in the allocation method
Common costs pertain to costs that:
Are NOT directly traceable to a cost object
Relevant costs in decision-making:
Are future costs that represent differences between decision alternatives
Gains differ from revenues because gains:
Are not a result of the entity's ongoing, central operation
Direct cost pertain to costs that:
Are traceable to a cost object
Financial leverage:
Arises because most borrowed funds have a fixed interest rate
A predetermined overhead rate is used to:
Assign indirect costs to cost object
A standard cost or production standard that is achievable under actual operating conditions is called a(n):
Attainable standard
Many financial analysts substitute one amount for another in making ratio analysis comparisons in order to better achieve inter-company or company-to-industry data comparability. Which of the substitutions described below would not achieve better data comparability (for the ratio indicated) under any situation?
Average net assets for the average total assests in the denominator of the return on investment ratio
In a make or buy decision, which of the following costs would be considered relevant?
Avoidable costs
A set of integrated financial and operating performance measures that communicate an organization's priorities associated with achieving strategic goals is known as a:
Balanced scorecard
For performance reports to be most effective for management by exception, they should:
Be issued as soon after the activity or period covered as possible
In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:
Be subtracted from net income because this means that revenues were more than cash collected
Cost of goods manufactured can be computed as:
Beginning balance of work in process + raw materials USED + direct labor law costs incurred + manufacturing overhead costs applied - ending balance of work in process
A performance report for direct labor shows a variance between the budget and actual amounts. The difference is:
Budget variance
The total variance for any particular cost component is referred to as the:
Budget variance
Which of the following is NOT a strong reason for budgeting?
Budgeting requires little effort by non-accounting managers
If the trend of the current ratio is increasing, while the trend of the acid-test ratio is decreasing over a period of time, this could be a warning that the firm is:
Carrying excess inventories
Which of the following transactions would not be shown under the operating activities category of the statement of cash flows (using the direct method)?
Cash paid to purchase land
A cost that is incurred because of a long-range policy decision is known as a:
Committed cost
Fixed costs classified according to the time frame perspective are known as:
Committed cost and discretionary cost
How is performance evaluated for an investment center?
Comparison of actual and budgeted ROI based on segment margin and assets controlled by the segment
Which of the following items would NOT be reported on the statement of cost of goods manufactured?
Contribution margin
Which of the following is the correct calculation for the contribution margin ratio?
Contribution margin divided by sales revenue
The decision for solving production mix problems involving multiple products and scarce production resources should focus on:
Contribution margin per unit of scarce resource
Performance analysis in the planning and control cycle relates to the act of:
Controlling
When the low-high method of estimating a cost behavior pattern is used:
Cost and volume data must be reviewed for outliers
The contribution margin format income statement is organized by:
Cost behavior classifications
An activity-based costing system involved in identifying the activity that causes the incurrence of a cost; this activity is known as a:
Cost driver
Which of the following is not an inventory account for a manufacturing company?
Cost of goods sold
When the periodic inventory system is used:
Costs of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases
Cost behavior refers to:
Costs that are variable or fixed
Which of the following is/are an example of a measure of leverage?
Debt/equity ratio
In considering whether or accept a special order at a price less than the normal selling price of the product and where the additional sales will make use of the present idle capacity, which of the following costs will not be relevant?
Depreciation of the manufacturing plant
The comparison of activity measures of different companies is complicated by the fact that:
Different inventory cost flow assumptions may be used
___ costs between two alternative projects are those that would result from selecting one alternative instead of the other:
Differential
The preferred format for a segmented income statement emphasizes:
Direct and common fixed costs
The three components of product costs are:
Direct material, direct labor, manufacturing overhead
Earnings per share calculations are required on the income statement for:
Discontinued operations, extraordinary items, and net income
Another term for the price/earnings ratio is:
Earnings multiple
An example of a cost likely to have a mixed behavior pattern is:
Electricity cost for the manufacturing plant
Managerial accounting, as opposed to financial accounting, is primarily concerned with:
Emphasizing the future
The redetermined overhead application rate based on direct labor hours is computed as:
Estimated total overhead costs divided by estimated direct labor hours
A variance is the difference between actual costs and:
Expected costs
A vertical common size income statement:
Expresses all items within any given year's income statement as a percentage of net sales for that given year
In a standard cost system, which of the following statements is true?
Favorable variances are not always good variances
If the actual number of labor hours used exceeds standard labor hours allowed for the actual number of units produced but actual labor cost is less than standard labor cost, the labor rate and efficiency variances are:
Favorable, Unfavorable
At the break-even point:
Fixed cost is always equal to the contribution margin
Expressing fixed costs on a per unit basis of activity is misleading because:
Fixed cost per unit decrease as activity increases
As the level of activity decreases:
Fixed cost remains constant in total
The primary difference between absorption costing and direct costing is the treatment of:
Fixed manufacturing overhead
When analyzing end of period production cost variances, which of the following product cost components will need "flexing"?
Fixed manufacturing overhead
If the actual level of activity is different from the budgeted level, a ___ budget is prepared for the actual level of activity:
Flexible
A budget adjusted to reflect a budget allowance based on actual activity rather than the original budget is a:
Flexible budget
Opportunity costs are:
Foregone benefits
Which of the following accounts/captions are not ever included in the calculation for Gross Profit?
General and selling expenses
The principle objective of a performance report is to:
Highlight activities that need management attention
Revenue may be recognized:
If a company trades inventory at its usual selling price for newspaper advertising
For control purposes, the variance should be isolated when:
Material is purchased
A capital budgeting technique that considers the time value of money is the:
Internal rate of return
Direct costing may be used for:
Internal reporting purposes
The price/earnings ratio:
Is a measure of the relative expensiveness of a firm's common stock
The inventory turnover calculation:
Is an alternative way of expressing the number of days' sales in the inventory
Book value per share of a common stock of a manufacturing corporation:
Is not a very useful measure most of the time
The gross profit ratio is useful to the manager for each of the following purposes EXCEPT:
It can be used to estimate the amount of operating expenses for a period
An advantage of the DuPont model for calculating ROI is that:
It focuses on asset utilization as well as net income
A cost is considered relevant if:
It makes a difference
Chuck's investment proposal would have to be inferior to Edna's proposal if it was expected to have a:
Longer payback period
Which of the following statements does NOT describe a characteristic of management accounting
Management accounting must conform to GAAP
Cost accounting is a subset of:
Managerial accounting
If the discount rate used to evaluate a capital budgeting project is equal to the project's internal rate of return, the project's:
NET present value is zero
Return on investment (ROI) is computed as:
Net income divided by average total assets
The first caption in most income statements in annual reports is:
Net sales
Another term for return on equity is:
None of these
When an income statement shows data for segments of the organization, and data for each segment are added together to get totals for the whole organization:
Only direct revenues and direct expenses should be assigned to segments
The concept of operating leverage refers to which of the following?
Operating income changes proportionately MORE than REVENUES for any given change in activity level
___ standards allow inefficiencies from prior years to be incorporated into the budget, thus providing little incentive for improvement:
Past experience
The best reason for flexing a budget is to:
Permit a more accurate determination of variances
To which function of management is CVP analysis most applicable?
Planning
Activities included in a generally accepted definition of the management process include:
Planning, organizing, controlling
A potential creditor's judgement about granting credit would be most influenced by the potential customer's:
Practice with respect to taking cash discounts offered by current suppliers
Which of the following variances is NOT determined during an overhead variance analysis?
Price variance
Which of the following costs are included in the "for cost accounting purposes" classification?
Product cost and period cost
An example of a cost that is likely to have a direct relationship with products being manufactured is:
Production labor costs
An example of a cost that is likely to have a variable behavior pattern is:
Production labor wages
An example of a product cost is:
Production line maintenance costs
An example of a cost that is non controllable in the short run is:
Property taxes
The cost of capital used in the capital budgeting process is primarily a function of:
ROI
If management wanted to increase the financial leverage of the firm, it would:
Raise additional capital by selling fixed interest rate long-term bonds
For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is:
Raises the current ratio
The three sections of a statement of cost of goods manufactured include:
Raw material, direct labor, manufacturing overhead
Which of the following is NOT an account that over/under applied overhead is transferred to at the end of an accounting period?
Raw materials
Which of the following describes the correct sequence of a flow of costs for a manufacturing firm?
Raw materials, work-in-process, finished goods, cost of goods sold
Return on equity:
Relates net income and stockholders' equity
When comparing entity financial ratios with industry ratios:
Relative values at a point in time may not be significant
The type of costs included in a management analysis relating to a capital budgeting decision should be limited to:
Relevant costs
Simplifying assumptions made when using cost behavior pattern data include:
Relevant range and linearity
Which of the following is NOT a category of financial statement ratios?
Reliability
Cost-volume-profit analysis assumes fixed costs:
Remain constant as activity changes
When a cost formula is used to describe a mixed (semi-variable) cost behavior pattern, total costs are expected to increase and per unit costs are expected to:
Remain constant as the level of activity increases
The contribution margin income statement:
Reports expenses based upon cost behavior pattern rather than cost function
Standards are most appropriately used to:
Support the planning and control processes of the firm
A(n) _______ is the minimum cost that can be incurred, which when subtracted from the selling price, allows for a desired profit to be earned:
Target cost
Which of the following factors favor the buy option in the make or buy decision?
Technical expertise of supplier
Recognition of revenue in accrual accounting requires:
That the revenue be realized or realizable, and earned
If the net present value of a proposed investment is positive:
The cost of capital is lower than the internal rate of return
Knowledge about the behavior pattern of a cost is important to understanding the effect on net income of a change in sales volume because as sales volume changes:
The effect on net income will depend on the behavior pattern of various costs
The term, "earned", in revenue recognition refers to which of the following?
The entity has competed, or substantially completed, the activities it must perform to be entitled to the revenue benefits
The term, "realization," in revenue recognition refers to which of the following?
The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash
The dividend payout ratio describes:
The proportion of earnings paid as dividends
The term "relevant range" refers to:
The range of activity where cost relationships are valid
In most circumstances, in order to recognize revenue:
The revenue must be realizable and earned
If a firm borrowed money on a six-month bank loan, the firm's working capital immediately after obtaining the loan. relative to its working capital prior to the loan, would be:
The same
An organizer's value chain refers to:
The sequence of functions and related activities that add value for the customer
The key difference between a controllable cost and a non controllable cost is:
The short term ability to influence the cost by the manager
A higher price/earnings ratio means that:
The stock is relatively expensive
As the total volume of activity changes:
The total of variable cost changes
The sequence of activities that add value to the organization are:
The value chain
ABU Co. has several products, each with a different contribution margin ratio. If the same number of units were sold in July as in June, but the sales mix changed:
Total contribution in July would be different from that in June
If the net of all variances is immaterial relative to the total production costs incurred during the period, the net variance is:
Treated as an adjustment to cost of goods sold
Which of the following costs are not relevant in a decision to continue or discontinue a segment of the organization:
Unavoidable costs
Which of the following will cause income determined to be higher than income determined with direct costing?
Units produced are greater than units sold
The return on investment measure of performance is:
Used by individuals to compare investment performance
The contribution margin format income statement:
Uses a behavior pattern classification for costs rather than a functional cost classification approach
Managerial accounting, as compared to financial accounting:
Uses frequent and prompt control reports
The difference between the fixed manufacturing overhead budgeted for the period and the fixed manufacturing overhead applied to the production for the period is called:
Volume variance
The fixed manufacturing overhead variance caused by actual activity being different from the estimated activity used in calculating the predetermined overhead application rate is called the:
Volume variance
Financial statement ratios support informed judgements and decision making most effectively:
When the trend of entity data is compared to the trend of industry data
Which of the following is NOT usually considered a measure of an entity's liquidity?
Working Capital