ACCY 200 Exam 2

Which of the following is a true statement regarding absorption and/or direct costing? A firm can choose to use either absorption or direct costing for income tax purposes. A firm can choose to use either absorption or direct costing for financial reporting purposes. Direct costing assigns only direct materials and direct labor to products. Absorption costing includes fixed overhead in product costs whereas direct costing does not.

Absorption costing includes fixed overhead in product costs whereas direct costing does not.

A favorable materials quantity variance would occur if:

Actual pounds of materials used were less than the standard pounds allowed.

Which of the following is an accurate statement regarding a statement of cash flows? All material operating, investing, and financing activities are included. Immaterial financing activities that affect cash do not need to be included. Only cash items that affect the income statement are included. Only material cash items that affect the income statement are included.

All material operating, investing, and financing activities are included.

How is performance evaluated for an investment center? Actual costs incurred compared to budgeted costs. Actual segment margin compared to budgeted segment margin. Comparison of actual and budgeted return on investment (ROI) based on segment margin and assets controlled by the segment. None of the answers are correct.

Comparison of actual and budgeted return on investment (ROI) based on segment margin and assets controlled by the segment.

Contribution Margin Ratio

Contribution Margin / Sales

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

Which of the following product cost components will not need "flexing" when analyzing end of period production cost variances? Direct material. Direct labor. Fixed manufacturing overhead. Variable manufacturing overhead.

Fixed manufacturing overhead.

Which of the following accounts/captions are not included in the calculation of Gross Profit? General and Selling Expenses. Net Sales. Cost of Goods Sold. All of these accounts/captions are included in the calculation of Gross Profit.

General and Selling Expenses.

For control purposes, the material price variance should be isolated when:

Material is purchased.

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. Operating income changes proportionately less than revenues for any given change in activity level. Operating income changes proportionately less than income for any given change in activity level. Operating income changes proportionately more than income for any given change in activity level.

Operating income changes proportionately more than revenues for any given change in activity level.

Which of the following is NOT an account that over/under applied overhead is transferred to at the end of an accounting period? Finished Goods. Cost of Goods Sold. Work-in-Process. Raw Materials.

Raw Materials.

Another term for return on investment is: Return on retained earnings. Return on equity. Return on assets. Return to sender.

Return on assets.

Contribution Margin formula

Sales - Variable Expenses

The term, "earned," in revenue recognition refers to which of the following? The entity has received an irrevocable order for goods or services. 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. Cash has been received with an irrevocable order for goods or services. The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.

The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.

The major difference between the indirect and the direct method of a statement of cash flows appears in which of the following activities section(s)? The investing activities and financing activities sections. The operating activities section only. The operating activities and financing activities sections. The investing activities section only.

The operating activities section only.

The major difference between the indirect and the direct method of a statement of cash flows appears in which of the following activities section(s)? The operating activities and financing activities sections. The operating activities section only. The investing activities and financing activities sections. The investing activities section only.

The operating activities section only.

The term, "realization," in revenue recognition refers to which of the following? The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits. 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 entity has received an irrevocable order for goods or services. Cash has been received with an irrevocable order for goods or services.

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.

Most entities satisfy the accounting criteria for recognizing an expense when: a commitment is made to purchase a product or service. cash is paid to a supplier. a cost is incurred in the revenue generating process. a dividend is paid to stockholders.

a cost is incurred in the revenue generating process.

Most entities satisfy the accounting criteria for recognizing revenue when: an order is received from a customer. an unearned revenue account is credited. a product is delivered or a service is provided. cash is received from a customer.

a product is delivered or a service is provided.

The use of activity-based costing information to support the decision-making process is known as: value chain analysis. cost distortion analysis. activity-based management. cost-based management.

activity-based management.

Which of the following costs would be classified as a period cost? production line maintenance costs. advertising expense for the product. indirect labor. plant electricity.

advertising expense for the product.

The concept of matching revenue and expense refers to the fact that: expenses incurred during a period equal the revenues earned during the period. all cash disbursements during a period are subtracted from all cash receipts during the period. all costs incurred in the process of earning revenues during a period are deferred and expensed in a future period. all costs incurred in the process of earning revenues during a period are recorded as expenses in that period.

all costs incurred in the process of earning revenues during a period are recorded as expenses in that period.

The difference between standard and actual cost per unit of input is measured by: the raw materials price variance. the direct labor rate variance. the variable overhead spending variance. all of the answers are correct.

all of the answers are correct.

The term "cost" means: the price paid for maintenance supplies. the salary paid to a supervisor. the price charged by an accounting firm for its audit services. all of the answers are correct.

all of the answers are correct.

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 sales mix shifts toward selling more of the product with the lower contribution ratio, which of the following is true? operating income will decrease. the average contribution margin ratio will decrease. the breakeven point will increase. all of the answers are true.

all of the answers are true.

Gains differ from revenues because gains: are reported as income from operating activities. are not a result of the entity's ongoing, central operations. do not have to be realized. do not involve any offsetting costs or expenses.

are not a result of the entity's ongoing, central operations.

Direct costs pertain to costs that: are commonly incurred. are traceable to a cost object. are not traceable to a cost object. are variable costs.

are traceable to a cost object.

A predetermined manufacturing overhead rate is used to: assign indirect costs to the units produced. assign selling and administrative expenses to total manufacturing costs. accumulate actual manufacturing overhead costs as they are incurred. establish predetermined selling prices for manufactured products.

assign indirect costs to the units produced.

Cost of Goods Manufactured can be computed as: beginning balance of work in process + raw materials purchased + direct labor costs incurred + manufacturing overhead costs applied - ending balance of work in process. ending balance of work in process + raw materials purchased + direct labor costs incurred + manufacturing overhead costs applied - beginning balance of work in process. ending balance of work in process + raw materials used + direct labor costs incurred + manufacturing overhead costs applied - beginning balance of work in process. beginning balance of work in process + raw materials used + direct labor costs incurred + manufacturing overhead costs applied - ending balance of work in process.

beginning balance of work in process + raw materials used + direct labor costs incurred + manufacturing overhead costs applied - ending balance of work in process.

When the high-low method of estimating a cost behavior pattern is used: the highest and lowest sales price and volume amounts are used in the calculation. the direct result of the high-low calculations is the fixed expense amount. the resulting cost formula will explain total cost accurately for every value between the high and low volumes. cost and volume data must be reviewed for outliers.

cost and volume data must be reviewed for outliers.

When the periodic inventory system is used: gross profit from the sale of an item from inventory is known when the item is sold. cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases operating profit from the sale of an item from inventory is known when the item is sold. the inventory account is adjusted on a daily basis throughout the year as inventory items are purchased and sold.

cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases.

When the periodic inventory system is used: gross profit from the sale of an item from inventory is known when the item is sold. cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases. operating profit from the sale of an item from inventory is known when the item is sold. the inventory account is adjusted on a daily basis throughout the year as inventory items are purchased and sold.

cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases.

Another term for the price/earnings ratio is: cost ratio. profit ratio. sales multiple. earnings multiple.

earnings multiple.

A variance is calculated to measure the difference between actual costs and: expected costs. activity-based costs. capacity costs. expected selling price.

expected costs.

As the level of activity decreases: fixed cost per unit decreases. fixed cost remains constant in total. variable cost remains constant in total. variable cost per unit decreases.

fixed cost remains constant in total.

If the actual level of activity is different from the budgeted level, a _________ budget is prepared for the actual level of activity: zero-based master continuous flexible

flexible

A budget adjusted to reflect a budget allowance based on actual activity achieved rather than the planned level of activity in the original budget is a: static budget. flexible budget. controllable budget. rolling budget.

flexible budget.

Revenue may be recognized: from the sale of a company's own common stock. in 2019 from the sale of subscriptions of a magazine to be published in 2020. if a company trades inventory at its usual selling price for newspaper advertising. if management believes the market value of land held for future development has increased during the year.

if a company trades inventory at its usual selling price for newspaper advertising.

The inventory turnover calculation: is wrong unless sales is used in the numerator. is wrong unless cost of goods sold is used in the numerator. requires knowledge of the inventory cost flow assumption being used. is an alternative way of expressing the number of days' sales in inventory

is an alternative way of expressing the number of days' sales in inventory

Rotablade's net income was $600,000 on sales of $24 million for the year. Average assets for the year were $8 million. For the year: margin was 2.5%, turnover was 2.0, and ROI was 5%. margin was 4%, turnover was 2.0, and ROI was 8%. margin was 4%, turnover was 3.0, and ROI was 12%. margin was 2.5%, turnover was 3.0, and ROI was 7.5%

margin was 2.5%, turnover was 3.0, and ROI was 7.5%

United Machining's margin was 2% and turnover was 3.0 on sales of $60 million for the year. On the basis on this information: net income for the year was $3,600,000, average assets were $10 million, and ROI was 6%. net income for the year was $3,600,000, average assets were $20 million, and ROI was 2%. net income for the year was $1,200,000, average assets were $10 million, and ROI was 2%. net income for the year was $1,200,000, average assets were $20 million, and ROI was 6%.

net income for the year was $1,200,000, average assets were $20 million, and ROI was 6%.

The first caption in most income statements in annual reports is: sales, less sales returns and allowances. gross sales. earned revenues. net sales.

net sales.

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: direct fixed expenses should be subtracted as one amount in the "total" column. all expenses should be allocated to the segments. only direct revenues and direct expenses should be assigned to segments. common fixed expenses should be allocated to the segments.

only direct revenues and direct expenses should be assigned to segments.

Using a flexible budget is necessary to: revise budget goals at the beginning of a period. adjust budgeted results so they are closer to actual amounts. permit a more accurate determination of variances. eliminate the effect of cost behavior patterns on budgeted amounts.

permit a more accurate determination of variances.

Which of the following variances is not determined during an overhead variance analysis? Price variance. Volume variance. Spending variance. Budget variance.

price variance

Cost-volume-profit analysis assumes fixed costs:

remains constant as activity changes

When a firm has financial leverage: risk is greater than if there wasn't any leverage. the firm will always have a higher ROE than it would without leverage. ROI will usually be less than it would be without leverage. ROI will be greater than ROE.

risk is greater than if there wasn't any leverage.

The decision to continue or discontinue a segment of the business should focus on: sales minus total variable expenses and total fixed expenses. sales minus total variable expenses and avoidable fixed expenses of the segment. sales minus total variable expenses and allocated fixed expenses of the business. none of the answers are correct.

sales minus total variable expenses and avoidable fixed expenses of the segment.

Asset turnover calculations: are made by dividing sales for the year by the asset balance at the end of the year. should be evaluated by observing the turnover trend over a period of time. communicate information about how promptly the entity pays its bills. are made by dividing the average asset balance during the year by the sales for the year.

should be evaluated by observing the turnover trend over a period of time.

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 earned and included within net income were more than the cash collected. subtracted from net income because this represents revenues that have not yet been earned or provided by investing activities. added to net income because this represents revenues that have been earned but not yet collected. added to net income because this means that revenues earned and included within net income were less than the cash collected.

subtracted from net income because this means that revenues earned and included within net income were more than the cash collected.

Recognition of revenue in accrual accounting requires: only that a product be delivered or a service be performed. that cash be received. that the revenue be realized or realizable, and earned. only that the amount of cash to be received from the sale of a product or service be known.

that the revenue be realized or realizable, and earned.

An entity's current ratio will be influenced by: writing off an overdue account receivable against the allowance for uncollectible accounts. issuance of a stock dividend. the inventory cost flow assumption used. the depreciation method used.

the inventory cost flow assumption used.

Managerial accounting can best be described as:

the preparation and use of accounting information within the organization.

The dividend payout ratio describes: the proportion of earnings paid as dividends. dividends as a percentage of the price/earnings ratio. the relationship of dividends per share to market price per share. the percentage change in dividends this year compared to last year.

the proportion of earnings paid as dividends.

The term "relevant range" is used to describe: the range of activity where total variable cost remains unchanged as activity changes. the range of activity where a particular relationship between fixed and variable costs stays valid. the range of activity where costs will always fluctuate. the range of activity where fixed costs change proportionately as activity changes.

the range of activity where a particular relationship between fixed and variable costs stays valid.

Under most circumstances, in order to recognize revenue: the entity must have paid for all expenses incurred in generating the revenue. cash must have been received. the entity must expect to receive cash in the future. the revenue must be realized or realizable, and earned.

the revenue must be realized or realizable, and earned.

A higher P/E ratio means that: earnings are expected to decrease. investors are wary of the stock. the stock is relatively expensive. the stock is more reasonably priced.

the stock is relatively expensive.

The sequence of functions and related activities that, over the life of a product or service, can ultimately make a difference to the customer are: the value chain. the chain of production events. the value processes. the strategic cost initiatives.

the value chain.

In the statement of cash flows, depreciation and amortization expense is added back to net income because: these expenses are recognized for accounting purposes, but they do not represent economic costs. these expenses affect investing activities, not operating activities. these expenses do not affect cash, but were subtracted in the determination of net income. the cash disbursements for these accrued expenses will be made in a future period.

these expenses do not affect cash, but were subtracted in the determination of net income.

When little or no input from lower levels of management occurs, this budgeting approach is known as the: rolling budget approach. participative approach. discretionary approach. top-down approach.

top-down approach.

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: operating income would be the same in June and July. the company's overall contribution margin ratio would be the same in June and July. fixed expenses in July would be in a different relevant range than in June. total contribution margin in July would be different from that in June.

total contribution margin in July would be different from that in June.

When the net amount of all product cost variances is not material during the period relative to the total production costs incurred, the net variance is: treated as an adjustment to cost of goods sold. treated as an adjustment to cost of goods manufactured. treated as an adjustment to manufacturing overhead. treated as an adjustment to work in process, finished goods, and cost of goods sold.

treated as an adjustment to cost of goods sold.

The contribution margin format income statement: uses a behavior pattern classification for costs rather than a functional cost classification approach. results in a larger amount of operating income than the traditional income statement format. is most frequently used for financial statement reporting purposes. emphasizes that all costs change in proportion to any change in revenues.

uses a behavior pattern classification for costs rather than a functional cost classification approach.

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