ACG2071-Practice Quiz 2

In using an ABC​ system, which steps are performed before the​ company's year begins

- select an allocation base for each activity. - calculate an activity cost allocation rate for each activity. - identify the primary activities and estimate a total cost pool for each.

When using the high−low ​method, what is the correct order of the following three​ steps?

1. find the slope 2. find the vertical intercept 3. write the cost equation

TQM:

A company philosophy of continually striving for higher levels of performance.

Inventory:

A company stocks up on parts just because they are on sale.

Excess processing:

Additional production activities are undertaken that a customer doesn't care about.

DOWNTIME:

Code for a set of wastes

When preparing a​ scatterplot, how should the data be​ graphed?

Cost data on the y-axis

A plantwide overhead rate system yields more accurate costs than an ABC System.

False

ABC is best used when products are similar.

False

At any given volume, average fixed costs must equal average variable costs.

False

Batch -level costs are variable with respect to the number of units produced.

False

Fixed costs per unit increase as production levels increase.

False

Gross margin is another term for net income.

False

In a cost-volume-profit graph, the break-even point is where the graph crosses the vertical axis.

False

Lean companies only include manufacturers since service providers and retailers cannot adopt lean operations.

False

Repairing defects is an example of a value-added activity.

False

Storing the raw materials before they are used in production is an example of a value-added activity.

False

The cost equation determined by regression analysis is usually less accurate than the cost equation determined by the high-low method.

False

The cost to design and market new models would be considered a facility--level cost.

False

The fixed cost per unit always remains the same.

False

The graph for total fixed costs will be a vertical line.

False

The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs of the department by the estimated total quantity of the​ department's cost allocation base.

False

Total fixed costs change in response to changes in the volume of production.

False

Value -- added activities are activities that could be reduced or removed from the process with no ill effect on the end product or service.

False

When graphing total mixed costs, the cost line always begins at the intersection of the x and y axis.

False

When overhead is allocated to every product using the same manufacturing overhead rate, this rate is called the departmental overhead rate.

False

Using account​ analysis, what type of cost is the local phone service which charges a flat fee for unlimited local​ calls?

Fixed

The income statement on which product and period expenses are separated

GAAP income statement

The cost of fixing defective units found during the quality inspections would be classified as what type of​ cost?

Internal failure cost

Waiting:

It takes 5 hours for parts to get to work in process so production is delayed

Which of the following is a sign that a product cost system is not working​ properly?

Managers​ don't understand costs and profits.

ABC can be used by which of the following​ companies?

Merchandisers Manufacturers Service Providers

Transportation:

Poor plant layout requires the product to be shifted around the factory continually

The costs of training production personnel on their job tasks is an example of which of the following types of​ costs?

Prevention costs

Which of the following is a lean​ strategy?

Produce in smaller batches than a traditional system.

On a regression analysis output generated with​ Excel, a regression​ equation's "goodness of​ fit" is represented by the

R-square.

Which of the following costs is an example of a fixed cost?

Salary of plant manager

Not Utilizing People:

Sue is able to run a drill press but no one ever lets her do it.

If the sales price per unit increases while the variable cost per unit and total fixed costs remain​ constant, which of the following statements is true​?

The contribution margin increases and the breakeven point decreases.

Overproduction:

The factory production volume is twice customer demand

Variable costs are described by which of the following​ statements?

They are fixed per unit and vary in total.

Which of the following statements is TRUE with respect to total variable costs?

They will decrease as production decreases within the relevant range

Defects:

Things in a product that demonstrate poor quality

When calculating a departmental overhead​ rate, what should the denominator​ be?

Total estimated amount of the departmental allocation base

ABC systems can be used in manufacturing and service industries.

True

All else being​ equal, a company earns more income by selling highminus−contribution margin products than by selling an equal number of lowminus−contribution margin products.

True

An ABC system has multiple cost pools for overhead whereas a traditional system has only one cost pool for overhead.

True

An ABC system will usually have more overhead cost allocation rates than a traditional costing system.

True

An expense such as advertising could be considered a discretionary fixed cost.

True

Analyzing an organization's cost behavior is a necessary first step in any cost-volume-profit analysis.

True

Appraisal costs are incurred to detect poor −quality goods or services.

True

Assume that fixed costs remain unchanged. If contribution margin increases by a given amount, then net income will increase by exactly the same amount.

True

Companies often refine their cost allocation systems to minimize the amount of cost distortion caused by the simpler cost allocation systems.

True

Companies that use ABC trace direct materials and direct labor to cost objects just as would be done using traditional costing systems.

True

Contribution margin income statements organize costs by behavior.

True

Cost distortion occurs when some products are overcosted while other products are undercosted by the cost allocation system.

True

Decreasing fixed expenses decreases the break-even point, assuming that the unit contribution margin stays constant.

True

If you increase sales volume, not only sales will increase, but variable costs will increase too.

True

In a traditional costing system, if one product is allocated a cost that is too low compared to its resource consumption, then at least one other product is allocated a cost that is too high compared to its resource consumption.

True

In a traditional income statement, the cost of goods sold includes both fixed and variable manufacturing costs.

True

Mixed costs per unit decrease as volume increases because of the fixed cost component.

True

Operating leverage refers to the relative amount of fixed and variable costs that make up total costs for a company.

True

Refined costing systems can be used to allocate any indirect costs to any cost objects.

True

Regression analysis uses all data​ points, not just the highest and lowest volume data points.

True

The breakeven point on a CVP graph is the point where the sales revenue line intersects the total expense line.

True

The fixed cost per unit of activity varies inversely with changes in volume.

True

The margin of safety can be expressed in​ units, in sales​ dollars, or as a percentage.

True

The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs by the estimated total quantity of the cost allocation base.

True

Total mixed costs increase as volume increases because of the variable cost component.

True

Total variable costs change in direct proportion to changes in volume.

True

Unit-level costs are variable with respect to the number of units produced.

True

When graphing total variable costs, the cost line always begins at the origin.

True

With increased competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products.

True

Which of the following is an example of a cost item that should be classified as an external failure​ cost?

Warranty claims

Movement:

Workers must take extra steps because of a poorly organized workplace.

Plantwide Overhead Rate:

a one overhead pool / one cost driver based approach to overhead application

The contribution margin income statement presents​ ________ above the contribution margin line.

all variable expenses

Costs incurred to detect poor quality goods or services are

appraisal costs.

The point there total revenues intersect total costs on a graph

breakeven point

Fixed costs that are the result of previous management decisions that current managers have no control over in the short run are called​ ________ fixed costs.

committed

The income statement on which fixed and variable expenses are separated

contribution margin income statement

Renting a car and paying $15 per day plus $.03 per mile driven is an example of what type of cost?

mixed cost

the extent to which an organzation uses fixed costs in its cost structure.

operating leverage

Value Engineering:

squeezing out non value added activities

Non value added activities:

things that do not increase the customer's view of the product or service

Which of the following represents the total mixed cost​ equation?

y​ = vx​ + f