ACIS 2116 Managerial Accounting - Exam 2 Study Guide
(True or False) Assigning common fixed costs to segment impacts segment margin only.
(True)
(True or False) Budgets: - communicate management's plan throughout the organization
(True)
(True or False) In activity-based costing, first-stage allocations are usually based on the results of interviews with employees.
(True)
(True or False) In activity-based costing, product margins are different from those calculated using traditional costing.
(True)
Activity-based costing is not used for external reporting because:
- ABC does not comply with GAAP - external reports are less detailed than internal reports - it is difficult to make changes in the existing accounting system
Customer-level activities include:
- mailing catalogs - sales calls
In activity-based costing, the consumption of overhead resources is caused by:
an activity
Standard costs fit naturally into an integrated system of ___ accounting.
responsibility
The difference between what the total sales should have been, given the actual level of activity for the period, and the actual total sales is a(n) ___ variance.
revenue
To understand why actual net operating income differs from what it should have been at the actual level of activity, the ___ variances should be analyzed.
revenue and spending
Because all other parts of the budget depend on it, if the ___ budget is inaccurate, the rest of the budget will be inaccurate.
sales
(True or False) Budgets: - and the budgeting process can uncover potential bottlenecks before they occur - coordinate the activities of the entire organization by integrating the plans of its various parts - define goals and objectives that can serve as benchmarks for evaluating subsequent performance - encourage managers to think about and plan for the future
(True)
(True or False) In an automated environment, using traditional allocation bases based on volume may distort unit product costs.
(True)
Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. This month 1,490 bottles were produced and 1,203 bottles were sold. Total cost of goods sold =
$6,472.14 ($5.38 * 1,203 = $6,472.14)
(True or False) A traceable fixed cost is incurred because of the existence of the segment.
(True)
(True or False) Activities that occur regardless of which customers are served, which products are produced or how many batches are run or units made are facility-level or organization-sustaining activities.
(True)
A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budgeted ___ ___.
income statement
In recent years, direct labor as a percentage of total cost began declining, which caused overhead to ___.
increase
The direct labor budget is based directly on the ___ budget.
production
An activity-based costing system:
- is costly to maintain - may exclude some manufacturing costs from product costs - produces different numbers than a traditional system - requires substantial resources - uses numerous overhead cost pools
Activity-based costing only charges products for the cost of the capacity used because:
- it results in a more stable unit product cost - products are only assigned the costs of resources they actually use
Using absorption costing for segmented income statements can lead to:
- omission of upstream and downstream costs - under-costing of segments
Absorption costing is:
- required by GAAP and IFRS - used by most companies for both internal and external reports
The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget? - Direct labor - Production - Sales - Selling and Administrative
Production
Which of the following is an example of a batch-level activity? - Advertising products - Assembling products - Heating a manufacturing facility - Setting up machines
Setting up machines
Which is not essential for the successful implementation of an ABC system?
Top managers must design the ABC system.
Financial statement users need to be aware of changes in inventory levels when using ___ costing.
absorption
Managers who believe that all manufacturing costs must be assigned to products in order to properly match the cost of production with sales are advocates of ___ costing.
absorption
Net income computed under ___ costing may not agree with the results of CVP analysis.
absorption
For external reporting, income statements are generally prepared using ___ costing, while ___ costing is used for internal decision making purposes.
absorption ; variable
List the line items in order to construct a contribution format income statement.
1) Sales 2) Variable expenses 3) Contribution margin 4) Fixed expenses 5) Net operating income
One option to generate a favorable ___ variance for net operating income is to increase the number of clients.
activity
The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is a(n) ___ variance.
activity
A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n) ___.
activity cost pool
The materials price variance is calculated using the ___ quantity of the input purchased.
actual
The material quantity variance reflects the difference between the __ quantity of materials used in production and the ___ quantity of materials allowed for the actual output.
actual ; standard
When calculating the labor rate variance, multiply the actual hours worked times the ___ labor rate and compare it to the actual hours worked times the ___ labor rate.
actual ; standard
Because it is needed for the schedule of expected cash collections, the annual master budget file includes the ___ ___ from last year.
balance sheet
The annual master budget file includes the ___ from last year because it is needed for the schedule of expected cash collections.
balance sheet
To prepare a budgeted balance sheet as of December 31, 20x4, data is needed from the ___ December 31, 20x3.
balance sheet as of
In activity-based costing, another term fro activity measure is ___.
cost driver
In a manufacturing company, the ___ budget details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories.
direct materials
The section on the cash budget that summarizes all cash payments that are planned for the budget period is the cash ___ section.
disbursements
The difference between the actual hours used and the standard hours allowed for the actual output is used in the calculation of the labor ___ variance.
efficiency
The variable overhead ___ variance measures activity differences and the variable overhead ___ variance measures cost differences.
efficiency ; rate
Using multiple cost drivers on a flexible budget report will generally:
increase accuracy
The terms price and quantity are used when computing direct ___ variance, while the terms rate and hours are used when computing direct ___ variances.
material ; labor
Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n) ___ activity variance.
favorable
When the actual hourly rate is lower than the standard hourly rate, the labor rate variance is ___.
favorable
When the standard price is higher than the actual price, the materials price variance is ___.
favorable
Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which ___ is handled in absorption costing.
fixed MOH
Under variable costing the cost of a unit of inventory does not contain:
fixed MOH
If a segment is entirely eliminated, common fixed costs will ___.
not change
The first line of the direct labor budget consists of the budgeted units expected to be ___ during the period.
produced
A function of sales and the direct and indirect costs that the product causes is the ___.
product margin
The profit from a product is also called the ___ ___.
product margin
In a manufacturing company, the ___ budget is prepared right after the sales budget.
production
The labor efficiency variance is generally the responsibility of the ___ manager.
production
The segment margin is a valuable tool for assessing the long-run ___ of a segment.
profitability
Most companies compute the material price variance when materials are ___ and the material quantity variance when materials are ___.
purchased ; used
If poor-quality materials results in excessive labor processing time, the ___ manager will probably be held responsible for the labor efficiency variance.
purchasing
How much input should be used to produce a product or provide a service is a(n) ___ standard.
quantity
SP(AQ-SQ) is the formula for the materials ___ variance.
quantity
The difference between the actual amount of an input used and the amount that should have been used, stated in dollar terms using the standard price of the input, is called a(n) ___ variance.
quantity
The difference between the actual amount of materials used in production and the standard amount of materials allowed for the actual output, multiplied by the standard price per unit of materials is the materials ___ variance.
quantity
AH(AR - SR) is the formula for the variable overhead ___ variance.
rate
The same basic formulas used for materials and labor are used to analyze ___ portion of manufacturing overhead.
the variable
In companies that do not use a self-imposed budgeting process, profit targets are generally set by ___.
top managers
If the actual cost is greater than what the cost should have been, the variance is labeled as ___.
unfavorable
Providing power to run production equipment is generally considered a(n) ___-level activity.
unit
The ending finished goods inventory budget computes the cost of ___ units.
unsold
The standard price of the material is used in the calculation of the material quantity variance because:
using actual prices would hold the production manager responsible for the inefficiencies of the purchasing manager
Both the production and selling and administrative expense budgets are prepared using information directly from the ___ budget.
sales
To calculate total sales on the sales budget, multiply budgeted sales in units by:
sales price per unit
Budgeted expenses for areas other than manufacturing are shown on the ___ budget.
selling and administrative
(True or False) In traditional absorption costing, only manufacturing costs are assigned to products.
(True)
(True or False) The basis of benchmarking is comparing performance within the same industry.
(True)
External reports are ___ detailed than internal reports.
less
When comparing the static planning budget to actual activity, a problem that arises when actual activity is higher than budgeted activity is that:
net income is higher than expected but all or most expense variances are unfavorable
More accurate estimates and higher motivation are generally the result of a(n) ___ budget.
participative
In a manufacturing company, the ___ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory.
production
To reconcile ABC product margin to net income:
subtract overhead costs not assigned to products
Costs are separated between variable and fixed expenses when using ___ costing, whereas ___ costing separates costs between product and period.
variable ; absorption
The two general costing approaches used by manufacturing companies to prepare income statements are ___ costing and ___ costing.
variable ; absorption
Variable costing income statement separate ___ expenses from ___ expenses.
variable ; fixed
Companies use the ___ ___ cycle to evaluate and improve performance.
variance analysis
(True or False) Usually, traditional costing overcosts high-volume products and undercosts low-volume products.
(True)
(True or False) Variances are more accurate when using multiple cost drivers.
(True)
(True or False) When direct labor is used as the overhead allocation base, the variable overhead efficiency variance is favorable when the direct labor efficiency variance is favorable.
(True)
(Actual cost per unit - standard cost per unit) * actual quantity = the materials ___ variance.
price
When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units ___.
produced
The materials quantity variance is generally the responsibility of the ___ department manager.
production
The material variance terms price and quantity are replaced with the terms ___ and ___ when computing direct labor variances.
rate ; hours
The first step in the budgeting process is preparing the ___ budget.
sales
In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the ___ budget.
selling and administrative
When the standard purchase price is less than the actual price paid for materials, the material price variance is ___.
unfavorable
Segment contribution margin equals segment revenue minus the ___ expenses for the segment.
variable
The number of units produced does not affect net operating income when using ___ costing.
variable
What level of activity is performed each time a single product item is produced?
Unit-level
The percentage change in net income in the flexible budget is greater than the percentage change in activity due to ___ costs.
fixed
Absorption and variable costing net income are usually different due to the accounting for:
fixed MOH
(True or False) Material quantity variances: - are usually the responsibility of the production manager - may be caused by faulty machinery or poor supervision - resulting from inferior materials are the responsibility of purchasing department manager
(True)
(True or False) Net operating income under absorption costing is generally higher than net operating income under variable costing in periods in which inventory increases.
(True)
(True or False) Nonprofit organizations: - have significant funding sources besides sales - may have revenue sources that are fixed
(True)
(True or False) One mistake companies make when preparing segmented income statements arbitrarily assigning common fixed costs to segments.
(True)
(True or False) Options to generate favorable revenue and spending variances include: - increasing operating efficiency - protecting the selling price - reducing the price of inputs
(True)
(True or False) Performance reports for cost centers do not include revenues or net income.
(True)
(True or False) Segment margin is obtained by deducting each segment's traceable fixed costs from its contribution margin.
(True)
(True or False) Segmented income statements may be prepared for activities at many levels in a company.
(True)
(True or False) Selling and administrative expenses are the same amount on both the absorption and variable costing income statements.
(True)
(True or False) Standard cost reports may be too outdated to be useful.
(True)
(True or False) Standards are: - benchmarks for measuring performance - compared to the actual quantities and costs of inputs - set for each major production input or task
(True)
(True or False) Standards provide information for measuring performance. When actual results depart significantly from the standard, the reasons why should be investigated.
(True)
(True or False) The cash budget is prepared near the end of the master budget process.
(True)
(True or False) The difference in net operating income between absorption costing and variable costing is due to the time when fixed overhead is expensed.
(True)
(True or False) The first major step in implementing ABC is to identify the activities that will form the foundation for the system.
(True)
(True or False) The flexible budget performance report consists of: - activity variances - revenue and spending variances - the planning budget, flexible budget and actual results
(True)
(True or False) The materials price variance is calculated using the: - actual quantity of the input purchased - actual price of the input - standard price of the input
(True)
(True or False) The materials price variance is generally calculated at the time materials are purchased because: - it allows materials to be carried in the inventory accounts at standard cost - it simplifies bookkeeping - management can generate more timely variance reports
(True)
(True or False) The number of bills sent out to a customer is an example of a transaction driver.
(True)
(True or False) The variable overhead efficiency variance depends on the efficiency of direct labor.
(True)
(True or False) The variance analysis cycle begins with the preparation of performance reports.
(True)
(True or False) Traditional absorption costing treats direct manufacturing costs as product costs.
(True)
(True or False) Under activity-based costing, nonmanufacturing costs may be allocated to products based on cause.
(True)
(True or False) Unfavorable activity variances may not indicate bad performance because increased activity should result in higher variable costs.
(True)
(True or False) Using budgeting assumptions when preparing the master budget makes it easier to answer "what-if" questions.
(True)
(True or False) When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead deferred in the inventory account on the balance sheet.
(True)
(True or False) When using a standard cost system: - an undue emphasis on labor efficiency can create pressure to build excess inventory - employees may take unfavorable actions to ensure favorable variances
(True)
(True or False) When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead cost divided by units produced.
(True)
(True or False) Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.
(True) (By allocating fixed manufacturing costs to units of product, absorption costing treats it just like a variable product cost.)
(True or False) Variable costing treats only variable manufacturing costs as product costs.
(True) Fixed manufacturing costs are treated as period costs under variable costing.
Discontinuing a profitable segment results in:
- a reduction in the overall profits of the company - the loss of the segment's revenues
Common mistakes made by companies when assigning costs to segments include:
- arbitrarily allocating common fixed costs - inappropriately assigning traceable fixed costs - omitting costs that should be included
On an absorption costing income statement, selling and administrative expenses:
- are reported as a single amount - equal the amounts reported on a variable costing income statement
(Select all that apply) Limitations of self-imposed budgeting include: - a broad strategic perspective - budgetary slack - sub-optimal budget recommendations - unrealistic profit targets
- budgetary slack - sub-optimal budget recommendations
Identifying the activities that will form the foundation for the system:
- can be time-consuming - involves a great deal of judgement - often involves interviewing employees
When a segment is eliminated, a:
- common fixed cost will remain unchanged - traceable fixed cost will disappear
When preparing a segment margin income statement:
- cost of goods sold consists of only variable manufacturing costs - traceable fixed expenses are deducted from contribution margin
Incorrectly or arbitrarily assigning common costs to segments:
- could reduce the overall profits of the company - distorts the profitability of segments - hold managers responsible for costs they cannot control
The most common management reports using ABC data are:
- customer profitability - product profitability
Costs assigned and/or traced when computing product margin in a traditional cost system are:
- direct labor - direct material - manufacturing overhead
Product costs under absorption costing include:
- direct labor - direct materials - fixed MOH - variable MOH
Using variable costing and the contribution approach for internal decision making:
- enables CVP analysis - facilitates explaining changes in net income - supports decision making
The materials price variance is the difference between the actual price of materials:
and the standard price for materials with the difference multiplied by the actual quantity of materials
When less hours are worked than the standard hours allowed, the labor efficiency variance is ___.
favorable
When the actual quantity of materials used is less than the standard quantity allowed, the material quantity variance is labeled as ___.
favorable
(True or False) A flexible budget shows what budgeted amounts should have been at the actual level of activity. As a result of this change in activity, the flexible budget will show a change in total revenue and variable cost.
(True)
(True or False) A function of sales and the direct and indirect costs that the product causes is the product margin.
(True)
(True or False) A price variance is the difference between the actual price and the standard price multiplied by the actual amount of the input.
(True)
(True or False) A quantity variance is calculated using the standard price of the input.
(True)
(True or False) A revenue variance is the difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period.
(True)
(True or False) Activity-based costing treats direct manufacturing costs as product costs.
(True)
(True or False) Activity-based costing treats direct nonmanufacturing costs as product costs.
(True)
(True or False) Activity-based costing uses activity rates to apply overhead costs to products in second stage allocation.
(True)
(True or False) Advantages to using a standard cost system include: - standard costs can simplify bookkeeping - standards provide benchmarks to evaluate and improve performance
(True)
(True or False) An activity cost pool accumulates costs for exactly 1 activity measure.
(True)
(True or False) An unfavorable labor efficiency variance can result from: - faulty equipment - poor quality materials - unmotivated workers
(True)
(True or False) Costs that can be traced directly to a segment should not be allocated to other segments.
(True)
(True or False) Fixed costs are often more controllable than variable costs.
(True)
(True or False) Fixed manufacturing overhead costs are included as part of Work in Process inventory under absorption costing only.
(True)
(True or False) If some products are overcosted and some are undercosted the errors will offset each other in cost of goods sold and inventory valuations.
(True)
(True or False) In ABC, the term cost driver is used to refer to an activity measure because it should "drive" the cost being allocated.
(True)
(True or False) In activity-based costing, the process of assigning overhead costs to activity cost pools is first stage allocation.
(True)
(True or False) Managers should not use standards to assign blame.
(True)
(True or False) Many of the schedules in a master budget are based on a variety of management estimates and assumptions.
(True)
Activity-based costing uses numerous ___ cost pools.
overhead
The purchasing manager is generally responsible for the material ___ variance, and the production manager is generally responsible for the material ___ variance.
price ; quantity
In a manufacturing company, the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget are all based on the ___ budget.
production
The difference between the standard and the actual direct labor wages per hour is reflected in the labor ___ variance.
rate
A manager cannot complain that the budget was unrealistic and impossible to meet when a(n) ___ - ___ budget is in place.
self-imposed
The amount of direct-labor hours that should be used to produce one unit of finished goods is the ___ hours per unit.
standard
The labor efficiency variance is the difference between actual hours used and standard hours allowed multiplied by the ___ hourly rate.
standard
Material requirements plus an allowance for normal inefficiencies are added together to determine the ___ ___ per unit of output for direct materials.
standard quantity
An unchanged planning budget is known as a(n) ___ planning budget.
static
Activity-based costing (ABC) is a costing method that provides managers with cost information for:
strategic and other decisions that potentially affect capacity and therefore "fixed" as well as variable costs
An ABC system usually ___ a traditional cost system.
supplements
An unfavorable materials quantity variance occurs when:
the actual amount of material used is greater than the standard amount of material allowed for the actual output
Variable costing income statements are based upon a ___ format.
contribution
ABC is generally used for ___ reporting.
internal
The standard rate per unit that a company expects to pay for variable overhead equals the:
variable portion of the predetermined overhead rate
(True or False) The standard hours per unit includes both direct and indirect labor hours.
(False) The standard hours per unit only includes direct labor hours.
If the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000, the total number of customer orders =
$1,700 ($425,000 ÷ $250 = 1,700)
Sleep Tight manufactures pillows. The company incurred $42,000 of fixed manufacturing overhead cost this year. Variable unit product cost was $17. Variable selling and administrative cost was $9 per unit and fixed selling and administrative expenses totaled $59,000. The company manufactured 28,000 pillows and sold 15,408. Total fixed expenses on the variable costing contribution format income statement =
$101,000 ($42,000 + $59,000 = $101,000)
SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by:
$11,000 (Increased online sales contribution margin [$100,000 × 10% × ($60,000 ÷ $100,000)] is $6,000 + $5,000 saved from stopping catalog sales = $11,000.)
Commission expense is budgeted to be $16,000 at a planned sales level of 4,000 units. If only 2,900 units are sold, how much commission expense will appear on the flexible budget, and is the activity variance favorable or unfavorable?
$11,600 ; favorable (16,000 / 4,000 = 4 * 2,900 = 11,600) (Since the flexible budget expense < planning budget expense, the variance is favorable)
Comfy Cozy Chairs makes rockers that require $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per rocker, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per rocker, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing =
$119 ($45 + $37 + $8 + ($58,000 / 2,000) = $119)
The Quaint Quilt produces and sells handmade quilts. Variable manufacturing costs total $140 per quilt. Fixed manufacturing overhead totals $68,250 per quarter. Variable selling and administrative costs are $19 per quilt sold, and fixed selling and administrative costs are $50,000 per quarter. Last quarter, the company produced 910 quilts and sold 780 quilts. The total variable cost reported on Quaint Quilt's variable costing income statement =
$124,020 (($140 + $19) * 780 quilts sold = $124,020)
Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit Direct labor: $75/unit Variable manufacturing overhead: $27/unit Fixed manufacturing overhead: $30,000 total Units: 10,000 produced and 6,000 sold
$155 ($50 + $75 + $27 + ($30,000 / 10,000) = $155 per unit)
JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40% and traceable fixed expenses of $70,000. Commercial has traceable fixed expenses of $50,000 and a contribution margin ratio of 55%. The company also has $30,000 of common fixed expenses. The break-even point in dollar sales for the Retail segment =
$175,000 ($70,000 ÷ 40% = $175,000)
The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold =
$20,376
Put'er There manufactures baseball gloves that require $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per glove and fixed manufacturing overhead cost is $19,000 in total. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing =
$47.00 ($22 + $18 + $7 = $47)
If the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product =
$7,800
The activity rate for the Customer Orders activity pool is $20 per order. If there are 400 customer orders for a product, the total overhead cost assigned to this product for customer orders =
$8,000
Sperling Company's master budget shows expected sales of 10,000 units and expected production of 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15.00 per hour. Calculate the expected total direct labor cost for the month of March.
$82,500 ((11,000 / 2) * 15 = 82,500)
Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 and a unit selling price of $190. If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be
$94,304
(True or False) Traditional absorption costing treats direct nonmanufacturing costs as product costs.
(False)
(True or False) Absorption costing and variable costing always result in the same net operating income each year.
(True) (Absorption costing and variable costing will only produce the same amount of net operating income when the number of units produced is equal to the number of units sold.)
(Select all that apply) Master budget schedules: - answer several key questions for a company - are based on estimates and assumptions - may be prepared in any order
- answer key questions for a company - are based on estimated and assumptions
Davidson Corporation's master budget shows expected direct labor cost of $90,000 for the month of May. During May, the company's expected sales equal 12,000 units and expected production is 15,000 units. If each unit requires 1/2 hour of direct labor, the budgeted direct labor rate is $ ___ per hour.
12 ((15,000 / 2) * 90,000 = 12)
Given budgeted sales of 10,000 units, desired ending inventory of 5,000 units, and beginning inventory of 2,000 units, required production is ___ units.
13,000 (10,000 + 5,000 - 2,000 = 13,000)
A performance report shows that the planning revenue was $240,000, the flexible budget revenue was $225,000, and actual revenue was $230,000. The activity variance is $___ and ___ (U/F).
15,000 ; U
If a cash budget is prepared by quarter, the beginning cash balance for the year is the same as the beginning cash balance for the ___ quarter and the ending cash balance for the year is the same as the ending cash for the ___ quarter.
1st; 4th
When inventory increases, which costing method generally results in higher net income?
Absorption costing (When inventory increases, some fixed manufacturing costs that are expensed under variable costing go to inventory under absorption costing, giving absorption costing a higher net income.)
Which of the following is an example of a unit-level activity? - Advertising products - Assembling products - Heating a manufacturing facility - Setting up machines
Assembling products
Which budget shows the company's planned profit and serves as a benchmark against which subsequent company performance can be measured?
Budgeted income statement
Which of the following is not found in the financing section of the cash budget? - Borrowings - Cash deficiency - Interest - Repayments
Cash deficiency
On the cash budget, what is subtracted from total cash available to find the cash excess or deficiency?
Cash disbursements
Which of the following is an example of an organization-sustaining activity? - Advertising products - Assembling products - Heating a manufacturing facility - Setting up machines
Heating a manufacturing facility
What number does the direct materials budget take directly from the production budget?
Required production
What is usually the major source of receipts in the receipts section of the cash budget?
Sales
Which costing system does not assign selling and administrative costs to products when computing product margin?
Traditional
Which costing method assigns only manufacturing costs to products?
Traditional absorption costing
An activity cost pool is:
a "bucket" in which costs are accumulated in an activity-based costing system
In activity-based costing, nonmanufacturing and manufacturing costs are assigned to products on a(n) ___ basis.
cause-and-effect
A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one segment is a(n) ___ fixed cost.
common
If a segment is eliminated, ___ fixed costs that are not traced to the segment will not change.
common
When creating an Excel budget and performing what-if analysis, it is generally easiest to:
create the budget with a budgeting assumption tab
The difference between reported net income on variable costing and absorption costing income statements is based on how:
fixed overhead is accounted for
An estimate of what revenue and costs should have been, based on the actual level of activity is shown on a(n) ___.
flexible budget
Absorption costing is categorized by ___, while variable costing is categorized by ___.
function ; behavior
Poor supervision is one possible cause of an unfavorable ___ variance.
labor efficiency
SR(AH - SH) is the formula for the ___ variance.
labor efficiency
When demand for a product is insufficient to keep all of the production workers busy and no layoffs occur, an unfavorable ___ ___ variance may occur.
labor efficiency
Segment break-even calculations include ___ fixed expenses.
only traceable
To assist in first-stage allocations in ABC, employees designated as indirect factory workers should provide the:
percentage of employee time spent for each activity pool
A budget that is prepared before the beginning of the period for a specific level of activity is called a ___ budget.
planning
Developing goals and preparing various budgets to achieve those goals is part of the ___ process.
planning
Budgets are used for two distinct purposes: ___ and ___.
planning; control
Activity-based costing uses more cost ___ than traditional costing.
pools
What is the final step in implementing ABC?
preparing management reports
The difference between actual results and the flexible budget amount is a(n) ___ variance.
spending
The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost is a(n) ___ variance.
spending
How much should be paid for an input is indicated by a price ___.
standard
The segment margin equals the segment's contribution margin less the segment's ___ fixed costs.
traceable
Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax of a store is the ___ fixed cost of the store and the ___ fixed cost of each product line sold in the store.
traceable ; common
Arbot Co. manufactures appliances at three manufacturing facilities in the United States. Each location has a plant manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product manufactured in the plant. The salary of each plant manager is a ___ for the individual product lines made in the plant.
traceable fixed cost to the plant and a common fixed cost
Costs of unused or idle capacity are assigned to products when using a(n) ___ costing system.
traditional
Simple counts of the number of times an activity occurs are ___ drivers.
transaction
A company's products had sales of $750,000 and total costs of $360,000. If the net operating income for the company was $215,000, total overhead costs not assigned to products was:
$175,000
Given on the following information, calculate the variable overhead rate variance. Actual variable overhead cost $15,500; Actual hours used 4,200; Standard hours allowed 4,000; and Standard variable overhead rate $3.75 per hour.
$250 F
Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290. An income statement prepared using variable costing shows ___.
$28,990
Frames, Inc. picture frames each require $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame and variable selling and administrative expense is $13 per frame sold. Total fixed manufacturing overhead cost per month is $15,000 and the company produces 5,000 frames each month. The unit product cost of each frame using variable costing =
$68
Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month =
$79,398
A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. Using activity-based costing, the activity rates are:
$8 per customer call and $15 per development hour ($200,000 ÷ 25,000 = $8 per customer call and $300,000 ÷ 20,000 = $15 per development hour.)
(True or False) A characteristic essential for successful implementation of ABC is a link to how people are evaluated and rewarded.
(True)
(Select all that apply) When profit targets are set by top managers: - employee motivation will increase - goals may be unrealistically high - strategic direction may be insufficient - too much slack may be allowed
- goals may be unrealistically high - too much slack may be allowed
Costs that can be easily traced to individual products include:
- sales commission - shipping costs - warranty repair costs
When calculating the profit impact of discontinuing a segment, consider:
- the segment's contribution margin - the segment's traceable fixed costs
List the steps for implementing ABC in the correct order.
1) Define activities, activity cost pools, and activity measures. 2) Assign overhead costs to activity cost pools. 3) Calculate activity rates. 4) Assign overhead costs to cost objects. 5) Prepare management reports.
Total cost of each activity divided by the total activity is the computation of ___.
activity rates
An activity is:
an event that causes the consumption of overhead resources
When actual revenue ___ what the revenue should have been, the variance is labeled favorable.
exceeds
What helps companies channel their resources into the most profitable growth opportunities?
Product and customer profitability reports
Advocates of ___ costing believe fixed costs are an essential part of product production.
absorption
All manufacturing costs are assigned to products in traditional ___ costing systems.
absorption
Because nonmanufacturing costs are not included as costs of a product, the use of ___ costing can lead to the omission of segment costs.
absorption
Fixed manufacturing overhead costs are expenses as units sold as part of cost of goods sold under ___ costing, and expensed in full with period costs under ___ costing.
absorption ; variable
A flexible budget performance report combines the:
activity variances with the revenue and spending variances
Some manufacturing costs may be excluded from product costs when using ___ costing.
activity-based
A budgeted balance sheet is developed using data from the ___ of the budget period and data contained in the various schedules.
beginning
A detailed plan for the future that is usually expressed in formal quantitative terms is a(n) ___.
budget
When a manager creates a budget that is too easy to attain, ___ occurs.
budgetary slack
Net operating income is less under absorption costing than under variable costing when inventory for the period ___.
decreases
Working hours required to satisfy the production budget are shown on the ___ budget.
direct labor
In a manufacturing company, the ___ ___ budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.
direct materials
The difference between the actual level of activity and the standard activity allowed for the actual output * the variable part of the predetermined overhead rate is the variable overhead ___ variance.
efficiency
The cost of unsold units is computed on the ___ budget.
ending finished goods inventory
Because of fixed costs, net operating income does not change in proportion to changes in the level of activity which is called the ___ effect.
leverage
Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of activity-based ___.
management
All costs of production other than direct materials and direct labor are shown on the ___ ___ budget.
manufacturing overhead
A number of separate, but interdependent, budgets that formally lay out the company's sales, production, and financial goals are contained in the ___ budget.
master
An integrated business plan that formally lays out the company's goals is called the ___ budget.
master
The amount of goods for resale to be acquired from suppliers during the period is shown on the ___ ___ budget.
merchandise purchases
The amount of goods to be acquired from suppliers during the period is shown on the ___ budget.
merchandise purchases
When inventory decreases, cost of goods sold under absorption costing will generally be ___ cost of goods sold under variable costing.
more than
When the activity level increases by 15%, net operating income in the flexible budget will ordinarily increase by ___ 15%.
more than
If a budget initiated by top management has targets that are set too high, ___.
motivation will suffer
When the actual cost incurred exceeds the standard cost allowed for the actual level of output, the spending variance is ___.
unfavorable
When the standard hourly rate is lower than the actual rate, the labor rate variance is ___.
unfavorable
Blink sells and manufactures frames for eyeglasses. The unit product cost for frame #47320 is $76.35. Last period, Blink produced 200 frames and sold 155 of them. Total cost of goods sold =
$11,834.25 ($76.35 * 155 = $11,834.25)
(True or False) A static budget is being compared to actual activity. The variance is favorable for income but unfavorable for most expenses. This suggests that actual activity was lower than budgeted.
(False)
(True or False) In an activity-based costing system, it is best to combine activities that are not highly correlated.
(False) (Activities that are highly correlated can be grouped together with little loss of accuracy)
(True or False) The amounts under the Year column in the cash budget always equal the sum of the amounts of the months or quarters of the budget.
(False) Beginning cash for the year equals beginning cash of the first month or quarter and ending cash for the year equals ending cash of the last month or quarter.
(True or False) For most companies a single, annual cash budget is sufficient.
(False) Monthly cash budgets are common and some companies may need budgets for shorter time periods to capture major cash fluctuations.
(True or False) Activity variances help managers understand why actual net income differs from what it should have been at the actual level of activity.
(False) Revenue and spending variances help explain the difference.
(True or False) The labor rate variance measures the productivity of direct labor.
(False) The labor rate variance reflects the difference between the actual and standard direct labor rates.
(True or False) A static budget is being compared to actual activity. The variance is favorable for net income but unfavorable for most expenses. This suggests that actual activity was lower than budgeted.
(False) The opposite is true. This suggests that actual activity was higher than expected which resulted in higher net income and expenses.
(True or False) All materials variances are generally the responsibility of the production manager.
(False) The production manager is generally responsible for the quantity variance and the purchasing manager is generally responsible for the price variance.
(True or False) A company with adequate cash balances at the beginning and end of the year may still have cash deficiency issues during the year.
(True)
(True or False) A cost center's performance report does not include revenue or net operating income.
(True)
(True or False) A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments.
(True)
(True or False) A favorable activity variance may not indicate good performance because a favorable activity variance for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity.
(True)
What are some of the limitations of activity-based costing systems?
- ABC procedures produce numbers that do not match traditional costing. - ABC requires substantial resources. - Managers and employees may resist the change to ABC.
What are used to calculate the standard quantity per unit of direct materials?
- Allowance for normal scrap and spoilage - Direct materials requirements per unit of finished product
Which of the following is needed to calculate raw materials to be purchased on the direct materials budget? - Beginning inventory of raw materials - Budgeted unit sales - Ending finished goods inventory - Raw materials required per unit
- Beginning inventory of raw materials - Raw materials required per unit
Which items are the same under both ABC and traditional costing?
- Net operating income - Total costs - Total sales
Which budgets are directly based on information from the sales budget?
- Production - Selling & administrative expense
Which of the following does not describe a difference between activity-based costing (ABC) and traditional absorption costing? - ABC usually excludes manufacturing overhead from its calculations whereas traditional absorption costing includes it. - ABC may assign nonmanufacturing and manufacturing costs to products whereas traditional absorption costing does not assign nonmanufacturing costs to products. - ABC may exclude some manufacturing costs from its product costs whereas traditional absorption costing includes all manufacturing costs in its product cost calculations. - ABC uses numerous cost pools to allocate costs to products whereas traditional absorption costing usually uses fewer cost pools.
ABC usually excludes manufacturing overhead from its calculations whereas traditional absorption costing includes it.
Which costing system charges products only with the costs of the capacity used by those products and not with the cost of unused capacity?
Activity-based
Which of the following is an example of a product-level activity? - Advertising products - Assembling products - Heating a manufacturing facility - Setting up machines
Advertising products
In a manufacturing company, which budget is used as the basis for creating the direct materials budget, the direct labor budget, and the manufacturing overhead budget?
Production
Which of the following is needed to prepare a sales budget? - Beginning inventory of finished goods - Desired ending inventory - Desired ending inventory of raw materials - The budgeted number of units to be sold
The budgeted number of united to be sold
When a manger creates a budget that is too easy to attain, ___ occurs.
budgetary slack
The difference between the actual level of activity and the standard activity allowed for the actual output x the variable part of the predetermined overhead rate is the variable overhead ___ variance.
efficiency
When the standard hours allowed are lower than the actual hours used, the labor efficiency variance is ___.
unfavorable
The prominent difference between performance reports in nonprofit and for-profit organizations is that nonprofit organizations:
usually receive significant funding from sources other than sales
The same basic formulas used for materials and labor are used to analyze the ___ portion of manufacturing overhead.
variable
The standard cost for ___ manufacturing overhead is computed the same way as the standard cost for direct labor.
variable
