BSAD 530 (Advanced Managerial Accounting) Exam 3
ToolTime's total labor variance is:
$1,030F.
Sniffifles Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,000. To achieve a target profit of $930,000, Sniffles' sales rounded to the nearest dollar must be:
$1,520,000
if the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000, what is the total number of customer orders?
$1,700
TootTime's labor quantity variance is:
$1,800F.
If a gain of $10,000 is incurred in selling (for cash) office equipment having a book value of $100,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is:
$110,000.
Davidson Corp'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 X 1/2 hour or 7,500 required labor hours. 90,000/7,500)
Ganter Company had the following department information about physical units and percentage of completion:
$120,000.
Pastoria Enterprises has scheduled raw material purchases of $100,000 in January, $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February
$122,500 ((130,000 X 75%) 97,500 + Jan. purchases (100,000 X 25%) 25,000)
Edison Corp's variable manufacturing overhead rate is $5 per direct labor hour. Budgeted direct labor cost is $20 per hour. Total budgeted fixed overhead is $25,000 per month. Total budgeted direct labor hours for the month of July is 20,000. Total budgeted manufacturing overhead for July is
$125,000 ((20,000 X 5) 100,000 + 25,000)
Sloan Inc. recently invested in a project with a 3-year life span. The net present value was $3,000 and annual cash inflows were $7,000 for year 1; $8,000 for year 2; and $9,000 for year 3. The initial investment for the project, assuming a 15% required rate of return, was:
$15,060.
Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $ ________.
$168,000
As of December 31, 2008, Stand Still Industries had $1,500 of raw materials inventory. At the beginning of 2008, there was $1,200 of materials on hand. During the year, the company purchased $183,00 of materials; however, it paid for only $175,500. How much inventory was requisitioned for use on jobs during 2008?
$182,700
S&P's direct material cost is $6.50 per unit. The direct labor rate is $30 per hour and each unit takes 1/2 hour to produce. Variable manufacturing overhead is $2.75 per unit and total budgeted fixed overhead is $63,000. A sales commission of $5 is paid on each unit. If S&P expects to produce 9,000 units and sell 7,000 units, the total budgeted cost of goods sold for the year is
$218,750 (6.50 + 15 (30 X 1/2) + 2.75 + 7 (63,000/9,000)= 31.25 X 7,000)
Madison Corp's expected beginning cash balance for the month is $35,000. The company expects to collect $50,000 from customers. Cash disbursements are estimated to be $80,000. Management wants to maintain a minimum cash balance of $20,000. the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month
$25,000 (35,000 + 50,000 - 80,000= 5,000 + 20,000)
The net income reported on the income statement for the current year was $220,000. Depreciation was $50,000. Account receivable and inventories decreased by $10,000 and $30,000, respectively. Prepaid expenses and accounts payable increased, respectively by $1,000 and $8,000. How much cash was provided by operating activities?
$317,000.
Chrissy's cupcakes has $832,000 in sales and $265,000 in fixed expenses. Given a contribution margin ratio of 72%, Chrissy's profit (loss) is:
$334,040
One of Jetson Company's activity cost pools is inspecting, with estimated overhead of $100,000. Jetson produces throw rugs (700 inspections) and area rugs (1,300 inspections). How much of the inspecting cost pool should be assigned to throw rugs?
$35,000.
A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, net operating income is:
$36,000
A company assigns overhead using a plan wide rate. If total estimated manufacturing overhead is $900,000 and the total activity is 30,000 machine hours, the overhead cost assigned to a product using 12,000 machine hours is:
$360,000 [($900k/30k) x 12K]
Wilton Company reported net income of $40,000 for the year. During the year, accounts receivable decreased by $7,000, accounts payable increased by $3,000 and depreciation expense of $5,00 was recorded. Net cash provided by operating activities for the year is:
$55,000.
For Dye Company, at a sales level of 5,000 units, sales is $75,000, variable expenses total $40,000, and fixed expenses are $21,000. What is the contribution margin per unit?
$7.00.
Goodstone Tire Corporation sells tires for $100 each. Per unit costs associated with producing and selling the tires are: Direct Materials $35 Direct Labor $10 Factory Overhead $20 Selling and Administrative $15 The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 10,000 tires for $70 each. The order would not require any selling or administrative costs. The purchaser will pay the shipping costs, but Goodstone will have to pay a $100,000 inspection fee in order to be able to make the foreign sale. Accepting the special order will not affect current sales or production. What effect would accepting the special order have on Goodstone's net operating income?
$70,000 increase The revenue per tire is $70 and the cost is $63 (direct materials, direct labor, variable overhead and inspection fee of $10 ($100,000/10,000) tires) so each tire will generate $7 in net operating income.
ToolTime's labor price variance is:
$770U.
Johnson Corp. has an 8% required rate of return. It's considering a project that would provide annual cost savings of $20,000 for 5 years. The most that Johnson would be willing to spend on this project is:
$79,860.
Sperling Company's master budget shows expected sales of 10,000 units and expected production 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15 per hour. Calculate the expected total direct labor cost for the month of March
$82,500 (11,000 X 1/2 X $15)
Dollar Sales to attain a target profit =
(TP + Fixed expenses) / CM Ratio
Unit sales to attain the target profit =
(Target Profit + Fixed Expenses) / Unit CM
The required sales in units to achieve a target net income is:
(fixed cost + target net income) divided by contribution margin per unit.
Limitations of activity based costing (ABC):
- ABC requires substantial resources - Managers and employees may resist the change to ABC -ABC procedures produce numbers that do not match traditional costing
If managers allocate organization-sustaining & unused capacity costs to products
- Costs will be overstated - Incorrect decisions may be made
ABC does NOT conform to GAAP because it:
- Includes some non manufacturing costs - Excludes some manufacturing costs
ABC is NOT for external reporting because:
- It is difficult to make changes in the existing accounting system - ABC does not comply with GAAP - External reports are less detailed than internal reporting
in abc the greater the number of activities, the:
- More accurate the costs are likely to be - More costly the system will be to design
An activity based costing system:
- Requires substantial resources - Produces different numbers than a traditional system -Is costly to maintain
Customer level activities include:
- Sales calls - Mailing catalogs
Activities that could be combined into one batch-level activity:
- The number of customer orders - The number of shipped orders
ABC provides managers with information that affects:
-Both fixed and variable costs
Which of the following is the most liquid asset?
-Cash
Cash outflows for financing activities include
-Cash disbursed to repay principle on long-term debt -Cash disbursed to repay principle on short-term debt -Dividends paid to common stockholders
EBIT stands for
-Earnings before interest and taxes
Always invest based on a friend's advice without looking at the 10-K
-False
EBITDA will always be a smaller number than EBIT
-False
Every organization should use a budget as a tool for managing
-False
Factoring is when you sell your accounts payable to a third party
-False
Fiscal year-ends are always December 31
-False
Indirect costs are the costs that can be directly linked to the product such as component costs and manufacturing labor
-False
Standard costs are used in tax accounting to determine amortization of equipment
-False
The GASB makes accounting rules for small businesses
-False
The SEC loves it when companies get creative in their financial filings
-False
The amount a business holds in "equity" is in cash in its bank account
-False
The cash method of accounting is the most commonly used method among large corporations.
-False
The cash method of accounting recognizes accounts receivable and accounts payable
-False
The indirect method is the most user-friendly method for creating a cash flow statement
-False
The value of stock on the balance sheet shifts with the market price of the stock
-False
ABC 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 cost of resources they actually use
n the 19th/20th centuries, cost systems relied on allocation bases such as:
-Machine hours -Labor hours
MD&A stands for
-Management's Discussion and Analysis
Costs assigned and/or traced when computing product margins in a traditional cost system are:
-Manufacturing overhead -Direct labor -Direct materials
Which of the following items are the same under both ABC and traditional costing?
-Net operating income -Total costs -Total assets
The MOST common management reports using ABC data are:
-Product profitability -Customer profitability
Activity based management is focused on:
-Reducing defects -Eliminating waste
The formula of the income statement is (I can never ask this enough!)
-Revenues-expenses=profit
SEC stands for
-Securities and Exchange Commission
Costs that can be easily traced to individual products include:
-Shipping costs -Sales commission -Warranty repair costs
What causes traditional and ABC systems to report different product margins
-Traditional cost systems allocate all manufacturing overhead costs to products -Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume related allocation base -The ABC system assigns nonmanufacturing overhead costs to products on a cause and effect basis as appropriate
What causes traditional and activity-based costing systems to report different product margins?
-Traditional cost systems allocate all manufacturing overhead costs to products -Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base -The ABC system assigns non manufacturing overhead costs to products on a cause-and-effect basis as appropriate.
A variable cost might vary with levels of production
-True
Companies use their own unique terminology for the titles and the line items on their financial statements
-True
Cost accounting systems track how much it costs to create, market, sell, and distribute a product or service
-True
Legal proceedings is one of many disclosures in Part I of the 10-K
-True
Part I of the 10-K is background information
-True
The SEC dictates the type of font to be used in financial filings
-True
The auditor issues an adverse opinion when the entity does not follow GAAP and it results in a material misstatement in the financial statements
-True
The frequency and accuracy of information cost time and money
-True
The indirect method has line items that disclose the increase or decrease in working capital items such as inventory, receivables, and payables
-True
In ABC, what costs are NOT assigned to products?
-Unused capacity -Organization sustaining
The cash flow statement is similar to
-a bank account statement
which of the following may be an advantage of making a part rather than buying it?
-a smoother flow of parts and materials for production -less dependence on outside suppliers
When you incur an expense but do not pay it in cash, it is recorded, under the accrual method of accounting, as
-an accounts payable
A sale that has not yet been collected in cash is
-an accounts receivable
which of the following are ways in which to calculate the benefit of selecting one alternative over another?
-an analysis that just looks a the relevant costs and benefits. -the difference between the net operating income for the two alternatives. -an analysis that looks at all costs and benefits and identifies those that are differential.
The best opinion an auditor can issue on the financial statements is
-an unqualified opinion
joint costs:
-are irrelevant in decisions regarding what to do with a product after split-off -cannot be avoided once a process is started.
when making a decision to either go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of the DVD would be eliminated. This is an example of which type of cost?
-avoidable cost -relevant cost
Retained earnings appear on which statement?
-balance sheet
The balance of accounts payable is reported on which statement?
-balance sheet
The balance of intellectual property is included on which statement?
-balance sheet
When an entity does not have enough resources to pay off its lenders or the bank, it is called
-bankruptcy
managers may choose to retain an unprofitable product line:
-because it attracts customers -because it helps sell other products
The cash flow statement only cares about what happened to
-cash
Cash used to purchase a fixed asset appears on which statement?
-cash flow statement
Cash inflows from investing activities include
-cash proceeds from the sale of equity investments in other entities
which of the following might be included in a customer relations cost pool?
-cost of sales calls -customer entertainment
which reports are the most common management reports using ABC data?
-customer profitability -product profitability
which of the following are synonyms for avoidable cost?
-differential cost -incremental cost
To approximate the market price of shares of stock at the fiscal year-end
-divide total market value of shares on the cover of the 10-k by total number of shares outstanding
The double-entry accounting system is thus called because
-each entry has two sides to it - a debit and a credit
What sorts of items end up on the bottom of the income statement?
-earnings from foreign currency transactions -sale of a business segment
types of costs that might be included in a cost pool based on order size include:
-equipment depreciation -factory supplies
Tax considerations include
-federal -state -local -sales -property -estate -personal income tax -corporate income tax
Balance sheet components include
-fixed assets cash, and accounts payable
The two main benefits of a budget are that budgets enhance
-focus and accountability
which of the following techniques describe how a bottleneck should be managed?
-focus business process improvement efforts on the bottleneck -find wats to increase the capacity of the bottleneck ensure there is minimal lost time at the bottleneck due to breakdowns and setups.
GAAP stands for
-generally accepted accounting principles
Assets are
-happy things that you own
The cash flow statement can tell you
-how a company is generating its cash -how the organization used its cash resources -how liquid the organization is -whether the income reported on the income statement is realized as cash
which of the following statements are true?
-improper allocation of joint costs can lead to incorrect decisions -joint costs are common costs that are incurred to produce two or more products. -allocation of joint costs is needed inventory valuation.
which of the following are ways to increase the capacity of a bottleneck?
-investing in additional machines at the bottleneck. -shifting workers from processes hat are not bottlenecks to the process that is the bottleneck
The balance sheet
-is the super-summary of the general ledger -is the mother of all financial statements -must balance
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.
Assets=
-liabilities plus equity
In general, accounts receivable balances should be
-low
In general, inventory balances should be
-low
in the 19th and 20th centuries, cost systems relied on allocation bases such as:
-machine hours -labor hours
which of the following departments should be included in the design of an ABC system?
-marketing -engineering -accounting
Which of the following would likely be a direct cost
-materials -manufacturing labor
The bottom line on the income statement is called
-net income
which of the following items are the same under both ABC and traditional costing?
-net income -total costs -total sales
Equity is a similar concept to
-net worth
To which margin should managers be held accountable?
-operating margin
which of the following should be included in the analysis when making a decision?
-opportunity costs -differential costs -avoidable costs -relevant costs
To get the 10-K, you can
-print it off from the company's website -print if off from the SEC Web site -call investor relations at the company and request a copy -e-mail investor relations at the company to request a copy
A zero-budget asks that you
-propose output at three levels -assume that you and all your stuff don't exist anymore
When we capitalize something, it means we
-record it as a fixed asset
A good example of a fixed cost is
-rent
The formula of the income statement is
-revenues-expenses=profit
the capacity of a bottleneck can be effectively increased by:
-subcontracting some of the processing that would be done in that area. -focusing business process improvement efforts on the bottleneck
which of the following should not be included in the analysis when making a decision?
-suck costs -non-differential costs
The three key financial statements are
-summaries of the general ledger.
when trying to decide if a particular cost is avoidable, how does a manager categorize irrelevant costs?
-sunk costs -future costs that do no differ between alternatives
what causes traditional and activity-based costing systems to report different product margins?
-the ABC system assigns non manufacturing overhead costs to products on a cause-and-effect basis as apposite. -traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base. -traditional cost systems allocate all manufacturing overhead costs to products.
Aliases for the income statement include
-the P&L -the profit and loss statement -the statement of earnings
The mother of all financial statements is
-the balance sheet
The three key financial statements are
-the balance sheet, the income statement, and the cash flow statement.
When we collect on an account receivable
-the cash flow statement records an increase in cash -the income statement is not affected
what manufacturing overhead costs are not assigned to products in activity-based costing?
-the costs of organization-sustaining activities -costs of idle capacity
The database of accounting information is called
-the general ledger.
When we make a sale on credit
-the income statement records a sale -the cash flow statement is not affected
When we make a cash sale
-the income statement records a sale -the cash flow statement records an increase in cash
The technique of distributing indirect costs to different products is often called
-the indirect cost allocation method
in ABC, the greater the number of activities:
-the more costly the system will be to design -the more accurate the costs are likely to be.
select which activities could be combined into one batch-level activity.
-the number of customer orders -the number of shipped orders
Which type of budget links the strategic plan to the budget?
-the performance-based budget
The income statement is linked to the balance sheet, its mother, through
-the retained earnings figure
Who has to approve any changes to the article of incorporation of the company?
-the shareholders
Governments call the income statement
-the statement of revenues and expenditures
One of the major criticisms aimed at financial accountants is that their information isn't
-timely
Profit and cash are different because of
-timing
which characteristics are essential for successful implementation of ABC?
-top managers must support ABC -A cross-functional team should be created. -ABC data should be linked to how people are rewarded.
which of the following costs can be easily traced to individual products?
-warranty repair costs -sales commission -shipping costs
Which step in the management decision making process: identify the decision problem, or determine why a decision needs to be made in the first place
1
Present Value =
1 / (1+r)^n
Place the steps for implementing ABC in 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.
The steps for implementing ABC in 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.
Blowing Sand Company has just received a one time offer to purchase 10,000 units of its Gusty model for a price of $22 each. The Gusty model costs $26 to produce ($17 in variable costs and $9 of fixed overhead). Because the offer came during a slow production month, Blowing Sand has enough excess capacity to accept the order. 1. Should blowing sand accept the special order? 2. Calculate the increase or decrease in short term profit from accepting the special order
1. Yes 2. Profit will increase $50,000 (10,000 fans X $5 contribution margin)
what are the advantages of dropping a product line or other segment? (2):
1. avoiding more fixed costs than the company loses in contribution margin 2. an overall increase in net operating income
Place the steps for implementing ABC in order
1. define activities, activity cost pools, and activity measure 2. assign overhead costs to activity cost pools 3. calculate activity rate 4. assign overhead costs to cost objects 5. prepare management reports.
place the steps for implementing ABC in order.
1. define activities, activity cost pools, and activity measure. 2. assign overhead costs to activity cost pools. 3. calculate activity rate 4. assign overhead costs to cost objects 5. prepare management reports.
What are synonyms for avoidable cost? (2):
1. differential cost 2. incremental cost
What are ways to increase the capacity of a bottleneck? (2):
1. investing in additional machines at the bottleneck 2. shifting workers from processes that are not bottlenecks to the process that is the bottleneck
What should NOT be included in the analysis when making a decision? (2):
1. non-differential costs 2. sunk costs
which of the following should be included in the analysis when making a decision: (4)
1. opportunity costs 2. relevant costs 3. differential costs 4. avoidable costs
when making a decision to either go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of renting the DVD would be eliminated. This is an example of a(n):
1. relevant cost 2. avoidable cost
What is the current ratio for this company?
1.42
Present Value of an Annuity =
1/r (1- 1/(1+r)^n)
Collections on credit sales made to customers in prior period(s) plus collections on sales made in the current budget period equal A. cash receipts B. cash payments C. merchandise purchases
A
Deciding what to do with a product that's ready to sell or could be enhanced is a A. sell or process further decision B. product line decision C. special order decision D. make or buy decision
A
Shasta Company plants to double its profits in 5 years. This is an example of a A. long term objective B. short term objective C. tactic D. sales forecast
A
The direct materials budget DIRECTLY relies on the A. production budget B. sales budget C. direct labor budget D. merchandise purchase budget
A
What kind of cost is gasoline when planning a trip and deciding to drive your car or take the train? A. relevant cost B. irrelevant cost C. sunk cost
A
What's added to the budgeted unit sales on a production budget to obtain the total number of units to be produced? A. budgeted ending inventory B. actual ending inventory C. budgeted beginning inventory D. actual beginning inventory
A
When a company is operating at full capacity A. a special order analysis includes the opportunity cost of lost sales B. a special order analysis is the same as if there's excess capacity C. a special order should never be considered or accepted D. a special order must consider the fixed manufacturing overhead costs
A
When making a one time special order decision, a company can ignore fixed overhead because A. the cost is not avoidable B. the cost is avoidable C. the cost cannot be determined D. none of the above
A
When resources are constrained, managers should prioritize products in order to maximize A. contribution margin per unit of the constrained resource B. sales volume C. opportunity cost D. fixed cost per unit of the constrained resource
A
When there's excess capacity, an analysis of a special order A. excludes fixed costs B. should include a sales price that's the same as the regular selling price C. includes opportunity costs D. isn't required because all special orders should be accepted
A
Which budget shows all costs of production other than direct materials and direct labor? A. manufacturing overhead budget B. cash budget C. merchandise purchases budget D. ending finished goods inventory budget
A
Which of the following is NOT a qualitative factor to consider in a make or buy decision? A. the variable production costs of the product B. the quality of the purchased product C. the reliability of the supplier
A
Which of the following is NOT a way to determine the sales forecast? A. long term objectives for R&D B. actual sales from prior periods C. planned marketing activities D. research on industry trends
A
Which of the following is NOT considered an operating budget? A. cash budget B. budgeted income statement C. selling and administrative expense budget D. raw materials purchase budget
A
Which of the following is NOT included on a budgeted cash payments budget? A. production in units B. depreciation C. cash paid for selling and administrative expenses D. payments for raw materials
A
Which of the following are ways in which to calculate the benefit of selecting one alternative over another?
An analysis that just looks at the relevant costs and benefits The difference between the net operating income for the two alternatives An analysis that looks at all costs and benefits and identifies those that are differential
Ways to calculate the benefit of selecting one alternative over the other
An analysis that just looks at the relevant costs and benefits An analysis that looks at all costs and benefits and identifies those that are differential The difference between the net operating income for the two alternatives
When trying to decide if a particular cost is avoidable, how does a manager categorize irrelevant costs? (check all that apply) A. sunk costs B. future costs that differ between alternatives C. fixed costs D. future costs that do not differ between alternatives
A, D
Which of the following budgets are needed to calculate unit product costs (check all that apply) A. direct materials budget B. cash budget C. selling and administrative budget D. direct labor budget E. manufacturing overhead budget
A, D, E
the first major step in implementing ABC is to identify the ________ that will form the foundation for the system.
ACTIVITIES
A(n) __ is any event that causes consumption of overhead resources
ACTIVITY
Labor Rate Variance =
AH x AR-SR
Variable Overhead Variance =
AH x AR-SR
Materials Price Variance =
AQ x AP-SP
Is Absorption or Variable Costing required in financial accounting?
Absorption
What activities and responsibilities are not associated with management's functions?
Accountability
Organization sustaining
Activities occur regardless of which customers are served, which products are produced or how many batches are run or units made.
Calculate under(over) applied MOH
Actual Applied Manufacturing Overhead -Predetermined Overhead Rate x actual allocation base
Which statement is true about relevant costs in incremental analysis?
All costs are relevant if they change between alternatives.
Under activity based costing, overhead includes:
All indirect costs
Which of the following manufacturing cost elements occurs in a process cost system?
All of these.
What can make a product line look less profitable then it really is
Allocated Common Fixed Costs
An activity measure is a(n) _______ base in an activity based costing system
Allocation
A measure such as direct labor-hours or machine hours used to assign overhead costs to products and services is called a cost driver or a(n) ________.
Allocation base.
Which of the following statements are true?
Allocation of joint costs is needed for inventory valuation. Joint costs are common costs that are incurred to produce two or more products. Improper allocation of joint costs can lead to incorrect decisions.
In activity based costing, the consumption of overhead resources is caused by:
An activity
which of the following are ways in which to calculate the benefit of selecting one alternative over another?
An analysis that looks at all costs and benefits and identifies those that are differential **An analysis that just looks at the relevant costs and benefits The difference between the net operating income for the two alternatives
Joint Costs:
Are irrelevant in decisions regarding what to do with a product after split off Cannot be avoided once a process is started
DIRECT Fixed Costs:
Associated with a particular product.
Which group is likely to be uncomfortable using ABC allocations that are based on personal interviews?
Auditors
A cost that can be eliminated by choosing one alternative over another is a(n)
Avoidable
What should be included in the analysis when decision making
Avoidable Costs Differential Costs Opportunity Costs Differential Costs
Advantages of dropping a product line or other segment include:
Avoiding more fixed costs than the company losses in contribution margin An overall increase in Net Operating Income
Budgetary slack occurs when a manager submits a budget that's A. very vague B. too easy to attain C. much like budgets submitted over the previous few years D. too difficult to attain
B
Budgets are used for 2 distinct purposes: _____ and _____. The first of these purposes relates to developing goals and preparing various budgets, while the second involves comparing actual results to the budget A. directing; planning B. planning; controlling C. leading; controlling D. directing; leading
B
Common fixed costs A. are included in the calculation of segment margin B. will be incurred even if a segment is eliminated C. should be included in a keep or drop analysis D. can be assigned to specific company segments
B
Segment margin A. is calculated as part of a special order decision B. includes both variable and direct fixed costs C. includes both direct and common fixed costs D. is the same thing as contribution margin
B
Tactics are A. specific goals managers need to achieve B. specific actions or mechanisms C. used to develop the strategic plan D. detailed plans stated in financial terms
B
When determining which product or service makes the best use of constrained resource, a company has to determine which course of action will maximize the company's total A. fixed costs B. contribution margin C. net income from sales D. net sales
B
When is it profitable to continue processing a product instead of selling it as is? A. it's never profitable B. it's profitable when the incremental revenue exceeds the incremental manufacturing cost C. it's profitable when the incremental processing cost exceeds the incremental revenue D. it's always profitable
B
Which budget shows the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory? A. cash budget B. production budget C. direct materials budget D. sales budget
B
Which of the following causes opportunity costs to become relevant to management decisions? A. sunk cost B. operating at full capacity C. operating with idle or excess capacity D. avoidable costs
B
Which of the following is NOT a step of the management decision making process? A. review results of the decision B. contact competitors who have made similar decisions C. evaluate the costs and benefits of the alternatives D. determine the decision alternatives
B
Which of the following is NOT another term for relevant costs? A. avoidable costs B. sunk costs C. differential costs D. incremental costs
B
Which of the following is considered irrelevant when planning a trip? A. the cost of gasoline for the car B. the original cost of the car C. the tolls that will be paid during the drive to the destination
B
Which of the following should a company consider when making a decision? A. relevant and irrelevant costs and benefits B. relevant costs and benefits C. neither relevant nor irrelevant costs and benefits D. irrelevant costs and benefits
B
Which one of the following budgets should be prepared first? A. production budget B. sales budget C. direct materials budget D. cash budget
B
Which of the following costs is not likely to be completely eliminated by a decision to drop a product line? A. the variable overhead traced to that product line B. the cost of direct materials used to make the product C. the common fixed costs allocated to that product line D. all of the above will be completely eliminated
C
Which of the following is NOT an important qualitative factor? A. employee morale B. customer loyalty C. cost per unit D. quality considerations
C
Which of the following is NOT considered a direct benefit of budgeting? A. better communication B. motivating employees C. developing new product lines D. forcing managers to think ahead
C
Which of the following is a cost that can be eliminated in whole or in part by choosing one alternative over another? A. variable cost B. sunk cost C. avoidable cost D. irrelevant cost
C
Which of the following is an advantage of budgeting? A. budgets focus on what has happened in the past B. budgets primarily help managers with day to day emergencies C. budgets communicate management's plan throughout the organization
C
Goodstone Tire Corp. sells tires for $90 each. Per unit costs associated with producing and selling the tires are direct materials $35 direct labor $10 factory overhead $20 The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has excess capacity A. there will be no incremental profit or loss from the special order B. the incremental loss from the special order will be $25,000 C. the incremental profit from the special order will be $12,000
C (the revenue per tire is $65 and the cost is $53 (DM, DL, VO), so each tire will generate $12 in incremental profit or $12,000 total)
Parts administration is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Organization-sustaining.
C) Product-level activity.
Which of the following is true of a company that uses absorption costing? A) Net operating income fluctuates directly with changes in sales volume. B) Fixed production and fixed selling costs are considered to be product costs. C) Unit product costs can change as a result of changes in the number of units manufactured. D) Variable selling expenses are included in product costs.
C) Unit product costs can change as a result of changes in the number of units manufactured.
Generally speaking, net operating income under variable and absorption costing will: A) always be equal. B) never be equal. C) be equal only when production and sales are equal. D) be equal only when production exceeds sales.
C) be equal only when production and sales are equal.
In activity-based costing, the activity rate for an activity cost pool is computed by dividing the total overhead cost in the activity cost pool by: A) the direct labor-hours required by the product. B) the machine-hours required by the product. C) the total activity for the activity cost pool. D) the total direct labor-hours for the activity cost pool.
C) the total activity for the activity cost pool.
Contribution Margin Ratio =
CM / Sales
The term ______ is also used when referring to an allocation base or activity measure in activity based costing
COST DRIVER
Acid-Test (Quick) Ratio =
Cash + Marketable Securities + AR + Short Term notes receivable / Current Liabilities (the liquid assets)
economies of scale
Companies may fail to take advantage of suppliers who can create an __ __ __ advantage by pooling demand from numerous companies.
Which of the following is not a management function?
Constraining
When a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n)
Constraint
Which of the following refers to the costs that ALWAYS differ between alternatives? A. irrelevant costs B. variable costs C. sunk costs D. relevant costs
D
Which of the following statements is TRUE? A. the first step in preparing the master budget is a budgeted balance sheet B. the master budget may be prepared in any order C. cooperation from management is not a required part of the budgeting process D. materials and labor budgets are based on the production budget
D
Which of the following statements is true? A. GAAP requires all companies to prepare budgets B. only newly formed companies need budgets C. most service firms prepare production budgets D. most companies would benefit from budgeting
D
Which phases of the management process are impacted by budgeting? A. planning B. directing/leading C. controlling D. all of the above
D
_____ happens when a manger creates a budget that understates expected revenues or overstates expected expenses A. zero based budgeting B. participative budgeting C. top down budgeting D. budgetary slack
D
Under absorption costing, a portion of fixed manufacturing overhead cost is released from inventory when production volume exceeds sales volume.
False
Under variable costing, fixed manufacturing overhead is treated as a product cost.
False
Unit-level activities are performed each time a batch is handled or processed.
False
When a company implements activity-based costing, manufacturing overhead cost is often shifted from low volume products to high volume products, with a higher unit cost resulting for the high volume products.
False
When activity-based costing is used for internal decision-making, the costs of idle capacity should be assigned to products.
False
When combining activities in an activity-based costing system, batch-level activities should be combined with unit-level activities whenever possible.
False
True or false: One difference between ABC and traditional product costing is that when using activity-based costing, organization-sustaining costs are assigned to products. Under traditional costing, they are not.
False Organization-sustaining costs are assigned to products when using traditional costing.
True or false: The benefits of increased accuracy from ABC always outweighs the costs
False, very costly.
One of the great dangers of allocating common __________ costs is that such allocations can make a product look less profitable than it really is
Fixed
Unit Sales to Breakeven =
Fixed Expenses / Unit CM
How do fixed costs change in total and per unit as activity changes?
Fixed cost per unit decreases as the activity level rises, and increases as the activity level falls
Dollar Sales to Break even =
Fixed expenses / CM Ratio
Why do we need flexible budgets?
Flexible budgets take into account how changes in activity affect costs.
What is the formula for finding the balance in an account after periods of compounding?
Fn=P(1+r)^n
Which of the following techniques describe how a bottleneck should be managed?
Focus business process improvement efforts on the bottleneck. Find ways to increase the capacity of the bottleneck. Ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups.
COMMON Fixed Costs
For good of the whole organization
Managers may choose to retain an unprofitable product line because it
Helps sell other products Attracts customers
What is the first step in the management decision-making process?
Identify the problem and assign responsibility.
differential (avoidable)
In step two of decision making, the costs that remain are the ___ costs.
Which of the following is the best way to make use of a constrained resource
Increase the capacity of the bottleneck
Format for a Special Order
Incremental Revenue Less Incremental Costs Direct Materials Direct Labor Variable MOH Special Modifications Special Fixed Costs Total Incremental Costs Incremental Net Operating Income
A joint product should be processed after split off if the:
Incremental Revenue after split off exceeds the incremental processing costs after split off
Format for Net Present Value Analysis Using Discount Factors
Initial Investment Annual Cost Savings Salvage Value of the new machine Total cash flows (a) Discount Factor (b) Present Value of the Cash Flows (a x b) Net Present Value
When a product is past the split off point, but is not yet a finished product it is called a(n) _____________ product
Intermediate
Bad decisions can only result from erroneously including __________ costs and benefits when analyzing alternatives
Irrelevant
Which one of the following best describes a job cost sheet?
It is a form used to record the costs chargeable to a specific job and to determine the total and unit costs of the completed job.
revenue
It is profitable to continue processing a joint product after the split-off point so long as the incremental ___ from such processing exceeds the incremental processing cost incurred after the split-off point.
Costs incurred up to the point in the split off point in a process in which two or more products are produced from a common input are called ____________ costs
Joint
The split off point is the point in the manufacturing process at which the ___________ products can be recognized as separate process
Joint
What is true of Joint Costs?
Joint Costs are common costs that are incurred to produce two or more products Improper allocation of joint costs can lead to incorrect decisions Allocation of joint costs is needed for inventory valuation
Two or more products produced from a common input are:
Joint Products
If by dropping a product line a company cannot avoid as much fixed cost as it loses in contribution margin, the company should:
Keep the Product Line
Top management support is needed when ABC is implemented because:
Leadership is instrumental to motivating employees to embrace ABC
The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is:
Machine hours
A decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier is called a(n) _______________ or _____________ decision
Make or Buy Decision
Under ABC, non manufacturing costs:
May be allocated to products based on cause
Costs that are relevant in a given situation:
May not be relevant in another decision situation
Materials Price Variance
Measures the difference between an inputs actual price and its standard price, multiplied by the actual quantity purchased
Earnings Per Share =
Net Income / Average number of common shares outstanding
The decision to add or drop a product line should be based on the impact the decision will have on:
Net Operating Income
Residual Income =
Net Operating Income - Avg Operating assets x minimum required rate of return
Return On Investment =
Net Operating Income / Avg Operating Assets
Which of the following should not be included in the analysis when making a decision?
Non-differential future costs Sunk costs
An example of a transaction driver is the:
Number of bills sent out to a customer
Which of the following information is contained on a time ticket?
Number of jobs worked, nature of indirect tasks worked, and amount of time spent on each job.
In activity based costing, first stage allocation assigns _________ cost to activity cost pools
OVERHEAD
n activity based costing, first stage allocation assigns _________ costs to activity cost pools
OVERHEAD
If some products are overcosted and some are undercosted the errors will:
Offset each other in COGS and inventory valuations
making decision
One of the basic functions of a manager =
contribution margin
Only drop a segment if the fixed costs you save by dropping the segment are greater than the ~ you lose by dropping the segment.
If a company has a resource that could be used for something else, the _____________ cost is the profit that could be derived from the best alternative use of the resource
Opportunity
The potential benefit given up when selecting one alternative over another is a(n) __________ cost
Opportunity
1
STEP ___ OF DECISION MAKING: -- eliminate costs and benefits that do not differ between alternatives (unavoidable costs)
2
STEP ___ OF DECISION MAKING: -- use the remaining costs and benefits that differ between alternatives in making the decision. The costs that remain are the differential, or avoidable, costs.
An ABC system usually _______ a traditional cost system
SUPPLEMENTS
Joint costs are traditionally allocated among different products at the split off point. A typical approach is to allocate the joint costs according to the relative ___________ value of the end products
Sales
Format for a Segmented Income Statements in the Contribution Format
Sales Variable Expenses Contribution Margin Traceable Fixed Expenses Divisional Segment Margin Common Fixed Expenses not traceable to individual divisions Net Operating Income
Contribution Margin =
Sales - Variable Expenses
What is the starting point for the Master Budget?
Sales Budget
Contribution Margin
Sales minus variable cost.
The equation which reflects a CVP income statement is:
Sales-Variable costs-Fixed costs=Net income.
Activity based costing uses activity rates to apply overhead costs to products in _______ allocation
Second stage
Deciding what to do with a joint product is a(n) ____________ or __________ ___________ decision
Sell or Process Further
Deciding what to do with a joint product at the split-off point is a ______ or ______ ______ decision.
Sell, Process, Further
Which of the following are ways to increase the capacity of a bottleneck?
Shifting workers from processes that are not bottlenecks to the process that is the bottleneck Investing in additional machines at the bottleneck
special order
Since the existing fixed MOH costs would not be affected by a __ __, they are not relevant.
Which of the following does not have an opportunity cost?
Space being used that has no alternative cost.
A one-time order that is not considered part of the company's normal on going business is referred to as a(n) ___________ ____________ decision
Special Order
A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n)________decision.
Special order
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are _______ costs
Sunk
What 2 types of costs are never relevant to a decision?
Sunk and Future Costs
T
T/F: Allocation of joint costs is needed for inventory valuation.
T
T/F: Improper allocation of joint costs can lead to incorrect decisions.
T
T/F: Joint costs are common costs that are incurred to produce two or more products.
T
T/F: Joint costs are irrelevant in decisions regarding what to do with a product from the split-off point forward.
T
T/F: Joint costs should not be allocated for decision making.
T
T/F: Total contribution margin will be maximized by promoting those products or accepting those orders that provide the highest contribution margin in relation to the constraining resource.
A company that is a price taker would most likely use which of the following methods?
Target costing.
A set of activities ranging from development to production to after sales service is called
The Value Chain
Why is the unit product cost different from the cost that would be incurred if another unit were produced?
The cost to produce another unit is the incremental or magical cost.
net operating income
The decision to add or drop a product line should be based on the impact the decision will have on ~.
bottleneck
The machine or process that is limiting overall output is called the ___; the constraint
Which of the following is considered a sunk cost when planning a trip?
The original cost of the car
ABC Lumber spend $1,000 cutting down a tree. The result was 40 pieces of unfinished lumber that sell for $20.00 each and 100 bags of sawdust that sell for $1.00 each. If the unfinished pieces of luber are processed into finished luber at a cost of $8.00 each, they will sell for $35.00. A bag of sawdust can be processed into Presto Logs that sell for $1.25 at a cost of $0.75 per bag. Which of the following statements are true concerning whether the unfinished pieces of lumber should be processed into finished lumber and whether the sawdust should be processed into Presto Logs?
The pieces of unfinished lumber should be processed. The pieces of lumber have an incremental revenue of $15 ($35 - $20) and an incremental cost of $8 so they should be procesed. The sawdust should be sold as is without being processed into Presto Logs. The sawdust has an incremental revenue of $.25 ($1.25 - $1.00) and an incremental cost of $.75 so it should be sold as is.
split-off point
The point in the manufacturing process where each joint product can be recognized as a separate product is called the ~.
Mixed Cost Formula
Total Fixed Cost + Variable Cost per unit of activity x activity level
Debt-to-Equity Ratio =
Total Liabilities / Stockholders Equity
Activity rates =
Total cost of each activity/total activity
Costing method assigns ONLY manufacturing costs to products:
Traditional absorption costing
A/an _____ _____ has the potential to influence a particular decision and will change depending on the alternative a manager selects
relevant cost
when making a decision to drive or take the train on a trip, the cost of the train ticket is a:
relevant cost
which of the following refers to the costs that always differ between alternatives?
relevant costs
Costs that will differ between alternatives and influences the outcome of a decision are:
relevant costs.
Cost assumptions are reasonably valid within the ________ ________ of activity.
relevant range
linear programming
what does a company do if it has more than one potential constraint? For example, a company may have limited raw materials, limited direct labor-hours available, limited floor space, and limited advertising dollars to spend on product promotion. How would it determine the right combination of product to produce? The proper combination or "mix" of product can be found by use of a quantitative method known as linear programming, which is covered in quantitative methods and operations management courses.
deciding what to do with a joint product at the split-off point is a(n) __ or __ __ decision.
sell or process further
Deciding what to do with a joint product at the split-off point is a:
sell or process further decision
_____ ______ ______ _____ _____ budget of selling and administration expenses required for the planned level of sales
selling and administrative expense budget
contribution margin per unit=
selling price per unit-variable cost per unit
The budget that shows the budgeted expenses for areas other than manufacturing is the _____ and _____ expense budget
selling, administrative
vertical integration
when companies start making their own raw materials; provides certain advantages such as a smoother flow of parts and materials, better quality control, and realized profits.
contribution margin
when making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative income statement.
when should a special order be accepted?
when the incremental revenue from the special order exceeds the incremental costs of the order
In the ease of adjustment coding scheme, ____ costs can adjust in response to changes in activity, but require management action.
yellow
when a resource, such as space in the factory, has no alternative use, what is its opportunity cost?
zero
_____ _____ budgeting requires managers to justify their expenditures each and every budgeting cycle instead of simply assuring previous period's levels are still appropriate
zero based
joint costs
~: are irrelevant in decisions regarding what to do with a product after split-off AND cannot be avoided once a process is started.
_____ firms do not need to prepare production budgets, inventory budgets, or manufacturing overhead budgets but they need to prepare budgets to predict sales revenue, labor costs, supplies, and other non manufacturing expenses such as commissions and advertising
service
Companies have a corporate social responsibility to provide _________ with competent management and easy access to complete and accurate financial records.
shareholders
In the _____ run, constrained resources impacts management decisions by maximizing the amount of contribution margin generated by the most limited resources
short
______ _____ _____ specific goal that management wants to achieve in the short run; usually no longer than 1 year
short term objective
which of the following does not have an opportunity cost?
space being used that has no alternative use.
A(n) __________ order is a one-time order that is not considered part of the company's normal ongoing business.
special
a(n) __ order is a one-time order that is not considered part of the company's normal ongoing business.
special
If the company has limited production capacity, filling the _____ _____ may create opportunity costs including lost revenue from regular sales, back orders, ect
special order
Negative consequences of accepting a _____ _____ include the potential impact sales made through "regular" channels, such as customers demanding the same reduced price that was given to the "special" order
special order
a one-time order that it not considered part of the company's normal ongoing business is referred to as a(n) __ __ decision.
special order
a one-time order that it not considered part of the company's normal ongoing business is referred to as a(n). __ __ decision.
special order
Management decision in which fixed manufacturing overhead is ignored as long as there's enough excess capacity to meet the order is _____ _____ _____
special order decision
Short term management decision made using differential analysis is _____ _____ _____, _____ _____ _____ _____, and _____ _____ _____ _____
special order decision, make or buy decisions, and keep or drop decision
_____ _____ _____ appellation of incremental analysis that requires managers to decide whether to accept or reject an order that's outside the scope of normal sales
special order decisions
_____ _____ _____ involve deciding whether to accept or reject an order that outside the normal scope of business, often at a reduced price
special order decisions
A _____ ____ is the starting point of the planning process and is the vision of what management wants to organization to achieve over the long term
strategic plan
The starting point of the planning process is management's _____ _____ or vision for the organization
strategic plan
_____ _____ managers' vision of what they want the organization to achieve over a long term horizon
strategic plan
Which of the following is NOT required to be viewed as a credible leader?
strong mentoring skills
_____ _____ products where one good can be used instead of another. Examples include butter and margarine, or sugar and artificial sweeteners
substitute products
to reconcile ABC product margin to net income:
subtract overhead costs not assigned to products.
A(n) __________ cost is a cost that has already been incurred and cannot be avoided regardless of what a manager decides to do.
sunk
costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are __ costs.
sunk
examples of irrelevant costs
sunk and future costs
A previously incurred cost which will not change in the future is a(n):
sunk cost.
Costs that are relevant to short term decision making are _____ _____
sunk costs
Costs that have already been incurred are _____ _____
sunk costs
_____ _____ are costs that have already been incurred and are not relevant to future decisions
sunk costs
Which type of cost is never relevant and should be disregarded when making decisions?
sunk.
Companies should provide __________ with reasonable times to prepare orders and hassle free acceptance of timely and complete deliveries.
suppliers
_____ specific actions or mechanisms that management uses to achieve objectives
tactics
split-off point
that point in the manufacturing process where some or all of the joint products can be recognized as individual products
opportunity cost
the benefit that is foregone as a result of pursuing some course of action; are not actual cash outlays and are not recorded in the formal accounts of an organization.
Spending Variance
the difference between the ACTUAL amount of the cost and how much the cost should have been, given the actual level of activity (cost in the FLEXIBLE budget)
Differential cost is:
the difference in cost between two alternatives and also known as incremental cost.
differential revenue
the difference in revenue between two alternatives
what activity measure it most appropriate for a cost pool consisting of the costs of resources consumed taking and processing customer orders?
the number of customer orders
which activity measure is most appropriate for a cost pool consisting of the costs of resources consumed taking and processing customer orders?
the number of customer orders.
which of the following is considered a sunk cost when planning a trip?
the original cost of the car
employees designated as indirect factory workers should provide what information to assist in first-stage allocations in ABC?
the percentage of employee time spent for each activity pool.
opportunity cost
the potential benefit that is given up when one alternative is selected over another.
Process costing is used when:
the production process is continuous.
Sales mix is:
the relative percentage in which a company sells its multiples products.
In the differential approach, only
the relevant costs are considered
a set of activities ranging from development to production to after-sales service is called:
the value chain
A set of activities ranging from development to production to after-sales service is called
the value chain.
The most effective way to strengthen a chain is to focus on:
the weakest link
For an activity base to be useful in cost behavior analysis:
there should be a correlation between changes in the level of activity and changes in costs.
What is the purpose of CVP?
to estimate how profits are affected by the following 5 factors: Selling Prices Sales volume Unit variable costs total fixed costs mix of product sold
Unlike a "_____ ______" approach to budgeting where budgets are set by upper management and imposed on employees, participative budgeting allows employees to provide input into their own budget
top down
______ _____ _____ budgeting method in which top management sets a budget and imposes it on lower levels of the organization
top down approach
all manufacturing costs are allocated to products in a(n) __ system, regardless of whether the product consumes the resources associated with those costs.
traditional
in a(n)__ costing system, only direct materials, direct labor, and manufacturing overhead are assigned to products.
traditional
what cost system uses a volume-related allocation base for all of the manufacturing costs?
traditional
which costing method assigns only manufacturing costs to products?
traditional
An income statement focusing on product and period costs has been prepared using a ________ format, while a(n) ________ format income statement makes a distinction between fixed and variable costs.
traditional, contirbution
__ drivers are simple counts of the number of times an activity occurs.
transaction
match the following words with the correct description.
transaction driver-number of times an activity occurs duration driver-amount of time to perform an activity activity measure-cost driver activity cost pool-amount of costs accumulated for a single activity.
T/F: Budgetary slack can sometimes be beneficial
true
when a team is created to design and implement an ABC system, it should include members that represent many different functional areas.
true
some manufacturing costs may be excluded from product cost when using ABC.
true.
joint products
two or more products produced from a common input
joint products
two or more products that are produced from a common input
Power to run production equipment would be a(n) _____-level activity.
unit
power to run production equipment would be a(n) __-level activity.
unit
match the following activity levels in activity-based costing with the correct activity.
unit level-power to run production equipment batch level-machine set up product level-product design customer level-sales calls organization sustaining-factory cooling system.
Buster Company reported a net loss of $3,000 for the year ended December 31, 2008. During the year, accounts receivable increased $7,000, merchandise inventory decreased $5,000, accounts payable decreased by $10,000, and depreciation expense of $5,000 was recorded. During 2007, operating activities:
used net cash of $10,000
A(n) ______ _______ consists of the major business functions that add value to a company's products and services.
value chain
A(n) __________ __________ includes activities ranging from development to production to after-sales service.
value chain
a(n)__ __ includes activities ranging from development to production to after-sales service.
value chain
A cost that changes in direct proportion to changes in the activity level is a ________ cost.
variable
Within the relevant range, _____ costs remain constant on a per unit basis.
variable
Contribution margin is the amount of revenue remaining after deducting:
variable costs.
Variable expenses/Sales is the calculation of the _______ _______ ratio.
variable expense
The contribution margin is equal to sales minus:
variable expenses.
A variable cost is a cost that:
varies in total in proportion to changes in the level of activity.
Variable Cost
varies, in total, in direct proportion to changes in the level of activity.
one advantage of using external suppliers instead of __ integration is that suppliers can pool demand from a number of companies and enjoy economies of scale, which can result in higher quality and lower costs than a company could obtain if it made the parts on its own.
vertical
Less dependence on suppliers is an advantage of
vertical integration
__ __ can help companies control quality better by producing their own parts and materials, rather than relying on the quality control standards of outside suppliers.
vertical integration
which term refers to a company that is involved in more than one activity in the value chain?
vertical integration
when a company is involved in more than one activity in the entire value chain, it is __ __.
vertically integrated
when a company is involved in more than one activity in the entire value chain, it is ________ __________.
vertically integrated
A distinguishing feature of managerial accounting is:
very detailed reports.
CVP analysis allows companies to easily identify the change in profit due to changes in:
volume, costs, and selling price.
Traditional cost systems allocate all manufacturing costs using ______ allocation base(s).
volume-related
Match the following words with the correct description. Transaction driver Duration driver Activity measure Activity cost pool
Transaction driver - Number of times an activity occurs Duration driver - Amount of time to perform an activity Activity measure - Cost driver Activity cost pool - Amount of costs accumulated for a single activity
A company has two divisions, each selling several products. If segment reports are prepared for each product, the division managers' salaries should be considered as common fixed costs of the products.
True
A traditional cost system is generally easier to set up and run than an activity-based costing system.
True
Absorption costing treats all manufacturing costs as product costs.
True
Activity-based costing is a costing method that is designed to provide managers with product cost information for internal decision-making.
True
An activity rate of $512 per product design means that on average a product design consumes resources that cost $512.
True
As the number of activities increase, the cost to implement an ABC system also increases.
True
If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost should be considered a common cost.
True
In the first-stage allocation in an ABC system, some costs may be allocated to a special cost pool that are not subsequently allocated to products or customers.
True
Managing and sustaining product diversity requires many more overhead resources such as production schedulers and product design engineers than managing and sustaining a single product. The costs of these resources can be accurately allocated to products using activity- based costing than traditional costing which is based entirely on direct labor-hours.
True
Organization-sustaining activities are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made.
True
Segment margin is sales less variable expenses less traceable fixed expenses.
True
Some manufacturing costs may be excluded from product cost when using ABA
True
The first-stage allocation in an ABC system is the process of assigning functionally organized overhead costs derived from the company's general ledger to activity cost pools.
True
To compute a product's profit or product margin, the product's sales and direct costs are needed in addition to the overhead costs computed in an activity-based costing system.
True
True of False: The monthly fee that a student pays to park at school is not relevant when deciding whether to take a train or drive for a weekend trip to visit an out-of-town friend.
True
True or False: The monthly fee that a student pays to park at school is not relevant when deciding whether to take the train or drive for a weekend trip to visit an out of town friend
True
True or False: Allocating joint costs to products at the split off point is misleading for decision making about the products
True
True or false: Effectively managing an organization's constraints is a key to increased profits.
True
True or false: Extrinsic rewards can lead to dysfunctional consequences.
True
True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.
True
Under variable costing, all variable production costs are treated as product costs.
True
Under variable costing, only variable production costs are treated as product costs.
True
Variable costing is more compatible with cost-volume-profit analysis than is absorption costing.
True
Variable manufacturing overhead costs are treated as product costs under both absorption and variable costing.
True
mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.
True
the monthly fee that a student pays to park at school is not relevant when deciding whether to take a train or drive to visit an out-of-town friend.
True
power to run production equipment would be a _____-level activity
UNIT
When making decisions using ABC data:
Unavoidable fixed costs should be ignored
Match the following activity levels in activity-based costing with the correct activity. Unit-level Batch-level Product-level Customer-level Organization-sustaining
Unit-level - Power to run production equipment Batch-level - Machine set-up Product-level - Product design Customer-level - Sales calls Organization-sustaining - Factory cooling system
Variable cost and Relevant Cost ARE NOT the same thing
Variable cost and Relevant Cost ARE NOT the same thing
How do variable costs change in total and per unit as activity changes?
Variable cost per unit remains constant
When a company is involved in more than one activity in the entire value chain it is _____________ _______________
Vertically Integrated
fixed costs saved > CM lost
What is the decision rule about dropping a segment?
constraint
When a limited resource of some type restricts the company's ability to satisfy demand, the company is said to have a ___.
incremental
When analyzing a special order, only the ___ costs and benefits are relevant
Diggs, Inc. has excess capacity. Under what situation(s) should the company accept a special order for less than the current selling price?
When incremental revenues exceed incremental costs.
contribution margin
When making a product line decision, a company may focus on lost __ __ and avoidable fixed costs or prepare comparative income statements.
What is the distinction between ROI and RI when evaluating managers?
When residual income is used to measure performance, the objective is to maximize the total amount of residual income, not to maximize ROI. If the objective were to maximize ROI, then every company should divest all of its products except the single product with the highest ROI
When should a special order be accepted?
When the incremental revenue exceeds the incremental costs from the order
When should a special order be accepted?
When the incremental revenue from the special order exceeds the incremental costs of the order
A product requires processing in two departments, Department A and then Department B, before it is completed. Costs transferred out of Department A will be transferred to:
Work in Process-Department B.
In a process cost system:
a Work in Process account is maintained for each process.
relevant benefit
a benefit that differs between alternatives
relevant benefit
a benefit that differs between alternatives in a decision. Differential revenue is a relevant benefit
The difference between a budget and a standard is that:
a budget expresses a total amount, while a standard expresses a unit amount.
a business segment should only be dropped if
a company can save more in fixed costs that it loses in contribution margin
avoidable cost
a cost that can be eliminated by choosing one alternative over another in a decision. This term is synonymous with differential cost and relevant cost.
avoidable cost definition
a cost that can be eliminated in whole or in part by choosing one alternative over another
avoidable cost
a cost that can be eliminated, in whole or in part, by choosing one alternative over another; are relevant costs
Sunk Cost
a cost that has already been incurred and cannot be avoided. EX. You bought a truck, the amount paid for the truck is a sunk cost
Absorption Costing
a costing method that includes all manufacturing costs- direct materials, direct labor and both variable and fixed manufacturing overhead- in unit product costs
make or buy decision
a decision concerning whether an item should be produced internally or purchased from an outside supplier
make or buy decision
a decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier
Production Budget
a detailed schedule showing the expected sales for the budget period
Sales budget
a detailed schedule showing the expected sales for the budget period expressed in both dollars and units
differential cost
a difference in cost between two alternatives.
relevant cost
a different in cost between any two alternatives. Synonyms are avoidable cost, differential cost, and incremental cost
Which of the following statements are true?
a direct cost can be easily and conveniently traced to a specific cost object & a regional sales manager's salary would be a direct cost of the regional office in which the sales manager works.
A cost driver is:
a factor that causes overhead costs to occur.
Traceable Fixed Cost
a fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated
Common Fixed Cost
a fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments
constraint
a limitation under which a company must operate, such as limited available machine time or raw materials, that restricts the company's ability to satisfy demand.
bottleneck
a machine or some other part of a process that limits the total output of the entire system
special order
a one time order that is not considered part of the companys normal ongoing business - only incremental costs and benefits are relevant
special order
a one-time order that is not considered part of the company's normal ongoing business
special order
a one-time order that is not considered part of the company's normal ongoing business.
A standard cost is:
a predetermined cost.
Flexible Budget
a report showing estimates of what revenues and costs should have been, given the ACTUAL level of activity for the period
value chain
a value chain includes activities ranging from development to production to after-sales service
An event that causes the consumption of manufacturing overhead resources is referred to as a(n) ________.
activity.
An incremental cost is
adding ONE MORE
Under activity-based costing, overhead includes
all indirect costs.
which of the following can make a product line look less profitable than it really is?
allocated common fixed costs
Activity-based-costing:
allocates overhead to multiple activity cost pools, and it then assigns the activity cost pools to products and services by means of cost drivers.
what is the typical approach to allocating joint costs to products?
allocating the cost based on the relative sales value of the end products
an activity measure in activity-based costing is used as a(n) __ base.
allocation
relaxing the constraint
an action that increases the amount of a constrained resource. Equivalently, an action that increases the capacity of the bottleneck.
A type of cognitive bias that comes from attaching credibility to a false piece of information which leads to distorted analysis is referred to as _____ bias.
anchor
Period Cost
are all the costs that are not product costs. All selling and administrative expenses are treated as period costs.
unavoidable cost
are incurred under all alternatives, thus they are irrelevant.
Unavoidable Cost
are irrelevant costs
joint cost:
are irrelevant in decisions regarding what to do with a product after split-off cannot be avoided once a process is started although the allocation of joint product cost is needed for some purposes, such as balance sheet inventory valuation, allocations of this kind are extremely misleading for decision making. The In Business box "Getting It All Wrong" illustrates an incorrect decision that resulted from using such an allocated joint cost.
joint costs incurred prior to the split-off point __ relevant in decisions regarding what to do from the split-off point forward.
are not
Direct Materials
are those materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product.
if a cost is traced to a segment using activity-based costing
as discussed in an earlier chapter, activity-based costing can be used to help identify potentially relevant costs for decision-making purposes. Activity based costing improves the tractability of costs by focusing on the activities caused by a product or other segment. However, managers should excercise caution against reading more into this "traceability" than really exist. People have a tendency to assume that if a cost is traceable to a segment, then the cost is automatically an avoidable cost. That is not true because the costs provided by a well-designed activity-based costing system are potentially relevant. Before making a decision, managers must still decide which of the potentially relevant costs are actually avoidable. Only those costs that are avoidable are relevant and the others should be ignored. IT MAY OR MAY NOT BE AN AVOIDABLE COST OF THE SEGMENT
Budget reports should be prepared:
as frequently as needed.
intermediate product
as it applies to sell or process further decision, intermediate product is in the process of being made
Managers may choose to retain an unprofitable product line because it
attracts customers it helps to sell other products
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n):
avoidable
A(n) __________ cost is a cost that can be eliminated by choosing one alternative over another.
avoidable
a cost that can be eliminated by choosing one alternative over another is a(n) ______ cost
avoidable
a(n) __ cost is a cost that can be eliminated by choosing one alternative over another.
avoidable
one of the benefits of dropping a product line is that a company can eliminate the product line's _________ fixed costs
avoidable
when identifying costs that are differential, a manager would eliminate costs and benefits that do not differ between alternatives and use the remaining costs and benefits that do differ between alternatives in making the decision. The costs that remain are the differential or __ costs.
avoidable
Costs that can be avoided by choosing one option over another is an _____ _____
avoidable cost
_____ _____ is a cost that can be avoided by choosing one decision option instead of another
avoidable cost
what cost is a cost that can be eliminated by choosing one alternative over another?
avoidable cost
which of the following is a cost that can be eliminated in whole of in part by choosing one alternative over another?
avoidable cost
When making a decision to either go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of the DVD would be eliminated. This is an example of a(n):
avoidable cost relevant cost
An _____ cost is one that can be avoided by selecting a particular decision alternative. It's a _____ cost because it will differ between decision alternatives
avoidable, relevant
Only costs that can be ______ are relevant when deciding to eliminate a product line.
avoided
What report shows the costs assigned to cost objects and the difficulty in adjusting the cost for changes in activity? a) External report b) Action analysis report c) Ease of adjustment report d) Conventional analysis
b) Action analysis report
Which group is likely to be uncomfortable using ABC allocations that are based on personnel interviews? a) Shareholders b) Auditors c) Employees d) Board of directors
b) Auditors
Which of the following types of costs are unaffected by which products are made during a period? a) Unit-level costs b) Organization-sustaining costs c) Customer-level costs d) Batch-level costs e) Product-level costs
b) Organization-sustaining costs
Which of the following is an example of a transaction driver? a) The number of hours spent setting up equipment b) The number of bills sent out to a customer c) The time spent preparing invoices d) The time spent repairing equipment
b) The number of bills sent out to a customer
Overhead includes both manufacturing and nonmanufacturing costs under: a) both activity-based and traditional costing b) activity-based costing c) traditional costing d) neither activity-based or traditional costing
b) activity-based costing
Under activity-based costing, overhead includes: a) only indirect non-manufacturing costs b) all indirect costs c) only indirect manufacturing costs d) both direct and indirect costs
b) all indirect costs
Computing overhead costs to be assigned to products for an action analysis report: a) calculates a single cost number for each cost pool b) includes a color-coding scheme to help with adjustments c) provides less detail than conventional ABC analysis d) results in a cost matrix.
b) includes a color-coding scheme to help with adjustments d) results in a cost matrix.
In the 19th and 20th centuries, cost systems relied on allocation bases such as: (Check all that apply.) a) the number of products sold. b) machine hours. c) the number of products made. d) labor hours.
b) machine hours. d) labor hours.
Setting up equipment, placing orders, and arranging shipments to customers are all examples of _____-level activities.
batch
setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of __-level activities.
batch
How do you estimate mixed costs with the high-low method?
begin by identifying the period with the lowest level of activity and the period with the highest level of activity change in cost / change in activity
Comparing the performance within an organization to that of other similar organizations is called ________.
benchmarking
Resource that's insufficient to meet the demands placed on them is _____
bottleneck
The machine or process that is limiting overall output is a(n):
bottleneck
The machine process that is limiting overall output is a
bottleneck
The process that's limiting overall output is called a(n) _____
bottleneck
_____ is the most constrained resource or the process that limits a system's output
bottleneck
the machine or process that is limiting overall output is called a(n) __.
bottleneck
A(n) _____ translates company objectives into financial terms
budget
Management's detailed plans for the future are often expressed formally in a(n)
budget
_____ _____ is crucial because companies use budgets to plan their ongoing operations so they'll be able to meet their short term and long term objectives
budgetary planning
Managers who intentionally understate expected sales or overstate expected expenses are creating _____ _____
budgetary slack
_____ _____ is a cushion that managers may try to build into their budget by understating expected sales or overstating budgeting expenses so that they're more likely to come in under budget for expenses and over budget for revenues
budgetary slack
______ ______ results form employees' attempts to build a cushion or margin of safety into their budget so that they'll be more likely to meet or exceed their budgetary goal, and thus receive a better performance evaluation
budgetary slack
______ _______ can be detrimental if other decisions are based on the budget, without adjustment for it
budgetary slack
The _____ _____ _____ provides info about a company's expected financial position at a specific point in time
budgeted balance sheet
_____ _____ _____ forward looking balance sheet that shows expected balance of assets, liabilities, and owners' equity at the end of the budget period
budgeted balance sheet
_____ _____ _____ _____ _____ budgeted manufacturing cost per unit multiplied by budgeted unit sales
budgeted cost of goods sold
_____ _____ _____ is the budgeted sales less budgeted cost of goods sold
budgeted gross margin
The _____ _____ _____ provides info about a company's expected revenue, expenses, and profitability for a period of time
budgeted income statement
_____ _____ _____ is the forward looking income statement that summarizes budgeted sales revenues and expenses for the budget period
budgeted income statement
_____ _____ _____ _____ _____ is the sum of budgeted direct materials, direct labor, and manufacturing overhead stated on a per unit basis
budgeted manufacturing cost per unit
Benefits of _____ include forcing managers to look ahead, which will help them to foresee potential problems such as running out of cash or inventory
budgets
Utilizing different _____ for different purposes will minimize the impact of budgetary slack
budgets
_____ are an important part of organizing because they translate the company's objectives into financial terms and lay out the resources and expenditures required over a limited horizon
budgets
_____ give managers a goal to work toward as it directs their actions, and may either motivate or demotivate them
budgets
_____ impact the control function because they serve as a basis against which actual results are compared
budgets
A series of steps followed to carry out a business task that can span departmental boundaries is a:
business process
If there are three customer orders containing 10 units each, what is the total number of batches? a) 10 b) 30 c) 3 d) 1
c) 3
In the ease of adjustment coding scheme, which of the following are usually considered Yellow costs? a) Direct materials b) Factory equipment depreciation c) Direct labor d) Factory utilities
c) Direct labor d) Factory utilities
In activity-based costing, ______ allocation is the process of assigning overhead costs to activity cost pools. a) second-stage b) third-stage c) first-stage d) fourth-stage
c) first-stage
A performance report:
can be used to help evaluate and reward employees & helps identify and eliminate sources of unsatisfactory performance.
Joint costs:
cannot be avoided once a process is started are irrelevant in decisions regarding what to do with a product after split-off
A measure of the limit placed on a specific resource is known as its _____
capacity
_____ is a measure of the limit placed on a specific resource
capacity
_____ is the measure of the limited capability of a resource
capacity
The _____ budget receives considerable attention because a company cannot exist without sufficient cash
cash
The components of the _____ budget include budgeted cash receipts, budgeted cash payments, and financing
cash
_____ _____ is the financial budget that provides info about budgeted cash receipts and payments
cash budget
ABC systems assign nonmanufacturing overhead on a(n) __-and-__ basis.
cause effect
Using the contribution margin ratio, the impact on net income for a change in sales dollar is:
change in sales dollars x contribution margin ratio.
Underpaid or overspilled manufacturing overhead can be disposed of by:
closing it out to Cost of Goods sold or allocation it among WIP, finished good, and COGS.
Costs that are shared by multiple cost objects in a company are known as ______ costs.
common
One mistake companies make when preparing segmented income statements is arbitrarily assigning ______ fixed costs to segments.
common
When performing a keep or drop analysis, _____ fixed costs should be excluded from the analysis
common
When performing a keep or drop decision analysis, _____ fixed costs should be excluded from the analysis
common
The decision to eliminate one product or service is unlikely to eliminate the _____ _____ costs that are shared by other product or service lines
common fixed
When a product line is eliminated, the _____ _____ costs allocated to that product will be redistributed to the remaining product lines
common fixed
_____ _____ _____ are costs shared by multiple segments that may be incurred even if a section is eliminated
common fixed costs
In most cases, prices are set by the:
competitive market.
A strategy helps a company distinguish itself from:
competitors
Discontinuing a _____ product can have a negative effect on related products
complementary
_____ _____ are products that are used together such as a printer and ink cartridge
complementary products
Direct Labor
consists of labor costs that can be easily (i.e., physically and conveniently) traced to individual units of product.
A(n) _____ resource requires a manager prioritize how products are produced
constrained
a(n) __ resource requires a manager to decide which products or services should be cut back.
constrained
_____ _____ are resources that are unable to meet the demand placed on them
constrained resource
When a shortage or limited resources of some type restricts a company's ability to satisfy demand, the company has a(n)________
constraint
Which of the following is a limited resource of some type that restricts the company's ability to satisfy demand?
constraint
when a limited resource of some type restrict a company's ability to satisfy demand, the company has a(n) __.
constraint
when a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) __.
constraint
when a limited resource of some types restricts a company's ability to satisfy demand, the company has a(n) __.
constraint
which of the following is a limited resource of some type that restricts the company's ability to satisfy demand?
constraint
Mixed Cost
contains both variable and fixed cost elements.
_____ budgeting gives managers a constant period of budgets available and keeps them in a continuous planning mode instead of only once per period
continuous
a 12 month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed
continuous or perpetual budget
The reason we focus on _____ _____ is that fixed costs will not change in the short run
contribution margin
To calculate the degree of operating leverage, divide ______ ________ by net operating income.
contribution margin
When determining which product or service makes the best use of a constrained resource, a company has to determine which products or customers will maximize:
contribution margin
a business segment should only be dropped if a company can avoid more in fixed costs than it gives up in:
contribution margin
when determining which product or service makes the best use of a constrained resource, a company has to determine which course of action will maximize the company's total:
contribution margin
when making a product line decision, a company may focus on lost __ __ and avoidable fixed costs or prepare comparative income statements.
contribution margin
The contribution margin ratio is:
contribution margin divided by sales.
Contribution margin divided by sales is the formal for:
contribution margin ratio.
Sales revenue minus variable expenses equals _______ _______.
contribution margin.
Comparing actual results to budgeted pans is an example of management performing its _____ function
control
an activity __ pool relates to a single activity measure in the ABC system.
cost
Another name for an activity measure or allocation base in ABC is _________ _______.
cost driver
the term __ __ is also used when referring to an allocation base or activity measure in activity-based costing.
cost driver
An activity that has a direct cause-effect relationship with the resources consumed is a(n):
cost driver.
The discount rate is referred to by all of the following alternative names except the:
cost of capital.
Gross margin is calculated by subtracting ______ from ______.
cost of goods sold; sales.
joint cost
costs that are incurred up to the split-off point in a process that produces joint products.
joint costs
costs that are incurred up to the split-off point.
joint cost
costs that are shared in the manufacturing and marketing of several products in a product line
relevant cost
costs that differ between alternatives
Activities that could be combined into one batch-level activity are the number of:
customer orders and shipped orders.
match the activity pool with an appropriate activity measure.
customer orders-number of customer orders product design-number of product designs order size-machine hours customer relations-number of customers
The most common management reports using ABC data are:
customer profitability and product profitability.
A value chain adds value by focusing on the major functions of a business including:
customer service, manufacturing, and R&D.
a cost pool including costs to entrain customers and make sales calls would be considered a __ activity.
customer-level
What type of team is needed to design and implement ABC? a) Self-leadership b) Executive c) Management d) Cross-functional
d) Cross-functional
Individual product costs are listed on which report? a) Both internal and external b) External c) Neither internal nor external d) Internal
d) Internal
Redeploying resources is only beneficial if the resources are shifted to the: a) most expensive work center b) work center with idle capacity c) least expensive work center d) work center at full capacity
d) work center at full capacity
Selecting a course of action from available alternatives is part of the ______ process.
decision making
When a product line is eliminated, total variable cost should _____ in direct proportion to the reduction in production and sales of that product line
decrease
In cost-plus pricing, the markup consists of:
desired ROI.
Labor Rate Variance
difference between the actual hourly rate and the standard hourly rate, multiplied by the actual number of hours worked during the period.
Labor Efficiency Variance
difference between the actual hours used and the standard hours allowed for the actual output, multiplied by the standard hourly rate.
Variable Overhead Efficiency Variance
difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate.
Activity Variance
difference between the actual level of activity used in the FLEXIBLE budget and the level of activity assumed in the PLANNING budget
Variable Overhead Variance
difference between the actual variable overhead cost incurred during the period and the standard cost that should have been incurred based on the actual activity of the period.
Differential Cost
difference in cost between two alternatives
A change in revenues between two alternatives is known as _______ revenue or incremental revenue.
differential
Which are avoidable costs?
differential and incremental.
_____ _____ is the costs that differ between decision alternatives
differential costs
______ ______ are costs that change across decision alternatives
differential costs
A _____ fixed cost is one that can be traced to a specific business segment
direct
Only the _____ _____ costs traceable to a product are avoidable
direct fixed
_____ _____ _____ is a fixed cost that can be attributed to specific business segment
direct fixed cost
Labor costs that can be easily and conveniently traced to a specific product are _____ costs.
direct labor
The work of factory employees that can be physically and directly associated with converting raw materials into finished goods is:
direct labor
_____ ____ _____ is a budget indicating the amount of direct labor needed to meet expected production
direct labor budget
which of the following statements is true regarding overhead allocation in the 19th and 20th centuries?
direct labor hours was a satisfactory overhead allocation base.
A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost.
direct material
Manufacturing costs include:
direct materials, direct labor, and manufacturing overhead.
The 3 sections of the cash budget are _____, _____, and financing
disbursements, receipts
which of the following is an advantage of buying a part instead of making it?
economies of scale can result in higher quality and lower costs from suppliers.
Activity-based management focused on:
eliminating waste and reducing defects.
how much of a constrianed resource to be used for each product? decision rule:
emphasize the products with the greatest contribution margin per unit of constrained resource
Companies have a corporate social responsibility to serve:
employees, suppliers, customers, and communities.
The _____ balance of cash appears on the budgeted balance sheet
ending
Companies should provide _________ and human rights advocates with greenhouse gas emissions data, child labor transparency, and recycling and resource conservation data.
environmental
Type of costs that might be included in a cost pool based on order size include:
equipment depreciation and factory supplies.
The formal for a predetermined overhead rate is:
estimated manufacturing overhead cost divided by estimated allocation base.
Without ______ behavior, the economy would operate much less efficiently. Less would be available to consumers, and quality would be lower
ethical
_______ ______ ______ _____ ______ _____ ______ is step 3 of the management decision making process
evaluate the costs and benefits of alternatives
what pieces of information are provided in product and customer profitability reports?
everything but unsatisfied customers
an activity cost pool accumulates for:
exactly one activity measure.
If a company has _____ capacity, increasing production will only increase the costs that vary with production
excess
When a company has more than enough resources to satisfy demand it's operating with ____ capacity
excess
Exists when a company has not yet reached the limit on its resources is ______ _____
excess capacity
If a company has enough _____ _____ of fill a special order without affecting "normal" sales, then there are no incremental fixed costs or opportunity costs to consider. Only the variable costs of the order must be covered by the sales price
excess capacity
When a company has not yet reached the limit on its resources, it has _____ _____
excess capacity
_____ _____ is the difference between a company's current level of production and what it could produce given its current operating structure and cost
excess capacity
_____ _____ occurs when a company has more than enough resources to satisfy demand
excess capacity
_____ capacity exists when a company has not yet reached the limit on its resources, while _____ capacity indicates that the limit on one or more resources has been reached
excess, full
A product profitability report:
excludes costs not caused by specific products.
When a supplier pools demand from a number of companies, it may enjoy economies of scale, which can result in higher quality and lower costs than a company could obtain if it made the parts on its own. This is an advantage of using __________ suppliers instead of vertical integration.
external
A benefit of the lean thinking model is:
fewer defects.
The budgeted balance sheet is prepared using info from the _____ budgets
financial
_____ _____ are budgets that focus on the financial resources needed to support operations
financial budgets
In activity-based costing, __ allocation is the process of assigning overhead costs to activity cost pools.
first-stage
If dropping a product line enables a company to avoid more in __________ costs than it loses in contribution margin, then its overall net operating income would improve by eliminating the product line.
fixed
One of the great dangers in allocating common __________ costs is that such allocations can make a product line look less profitable than it really is.
fixed
a business segment should only be dropped if a company can save more in ______ costs than it loses in contribution margin
fixed
one of the great dangers in allocating common ___ costs is that such allocations can make a product line look less profitable than it really is
fixed
one of the great dangers in allocating common ________ costs is that such allocations can make a product line look less profitable than it really is.
fixed
one of the greatest dangers in allocating common __ costs is that such allocations can make a product line look less profitable than it really is.
fixed
______ _____ costs can be ignored when making special order decisions because these costs will remain the same regardless of whether the order is accepted or not, so long as the company has the capacity to the order
fixed overhead
A static budget is appropriate for:
fixed overhead costs.
At _____ capacity, opportunity costs become relevant and should be incorporated into the analysis
full
If a company is at _____ capacity, production cannot be increased without incurring additional fixed costs
full
When a company's operating at _____ capacity, it means the limit on one or more resources has been reached, and making the choice to do one thing means giving up the opportunity to do something else
full
_____ costs are relevant when firms are at full capacity because choosing to do one thing forces managers to give up something else
full
At _____ _____ opportunity costs become relevant and should be incorporated into the analysis
full capacity
Opportunity costs become relevant when a company is operating at _____ _____
full capacity
_____ _____ occurs when a company is operating its resources to the limit of its capacity. No additional units can be produced or customers served without increasing capacity or incurring opportunity costs
full capacity
_____ ______ exists when a company has met its limit on one or more resources
full capacity
In terms of social responsibility, companies should provide customers with:
full disclosure of product-related risks.
For a cost to be relevant it must be a _____ cost that differs between decision alternatives
future
Materials requisitions are:
generally used less frequently in process costing than job order costing.
An absorption costing income statement calculates:
gross margin by deducting cost of goods sold from sales.
When using a traditional cost system, standard, __-volume products are generally overcosted and custom, __-volume products are often undercosted
high low
When using a traditional cost system, standard, _____-volume products are generally overcosted and custom, ______-volume products are often undercosted.
high, low
Key differences between variable and absorption costing include:
how costs classifications are defined, how fixed overhead is treated, and whether or not contribution margin is reported.
The first step in activity-based costing is to:
identify and classify the major activities involved in the manufacture of specific products.
1st step of the management decision making process is ______ ______ ______ _____
identifying the decision problem
when to retain an unprofitable line
if the product line acts as a magnet to attract customers if the product line helps sell other products or if it acts as a magnet to attract the customer
A disadvantage of the cash payback technique is that it:
ignores the time value of money.
Activity-based costing can identify activities that would benefit from process _______. (Enter only one word per blank.)
improvements
Product Cost
include all costs involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead.
Manufacturing Overhead
includes all manufacturing costs except direct materials and direct labor.
The budgeted _____ _____ shows a company's planned profit
income statement
Decide whether the statement about management's decision making process is correct or incorrect 1. The final step in management's decision making process is to actually make the decision 2. In making business decisions, management will ordinarily only concern financial info because it's objectively determined 3. The 1st step in management's decision making process is to determine the decision alternatives 4. Relevant costing is used for short term decision making because it focuses only on the cost and benefits that are relevant to the decision at hand 5. Under incremental analysis, variable costs will change under different courses of action, but fixed costs will never change 6. Decisions involve a choice among alternative courses of action 7. When using differential analysis, some costs will change under alternative courses of action, but revenues will not change
incorrect= 1, 2, 3, 5, 7 correct= 4, 6
in recent years, direct labor as a percentage of total cost began declining, which caused overhead to
increase
what is the best way to increase profits when there is a constrained resource?
increase the capacity of the bottleneck
which of the following is the best way to increase profits when there is a constrained resource?
increase the capacity of the bottleneck
Comparing the relevant costs and benefits of alternative decision choices is called _____ _____
incremental analysis
_____ _____ is the decision making approach that focuses on the differential costs and benefits of alternative decision choices
incremental analysis
a joint product should be processed after split-off if the:
incremental revenue after split-off exceeds the incremental processing cost after split-off.
Make or buy decisions are also referred to as _____ vs. _____ decisions
insourcing, outsourcing
when a product is past the split-off point, but is not yet a finished product, it is called a(n) __ product.
intermediate
as it applies to sell or process further decisions, which term refers to a product that is in the process of being made?
intermediate product
ABC is generally used for __ reporting.
internal
A master budget consists of:
interrelated financial budgets and operating budgets.
Motivation that comes from within is known?
intrinsic motivation.
Ways to increase capacity of bottleneck
investing in additional machines at the bottleneck, shifting workers from the processes that isn't bottlenecks to the process that is the bottleneck
Bad decisions can easily result from erroneously including __________ costs and benefits when analyzing alternatives.
irrelevant
When making decisions, managers should ignore _____ costs
irrelevant
When making decisions, managers should ignore __________ costs.
irrelevant
bad decisions can easily result from erroneously including _______ costs and benefits when analyzing alternatives
irrelevant
when choosing b/w two alternatives, such as replacing or not replacing the machine, do not include _______ costs in the analysis because these costs will be the same under each alternative.
irrelevant
when deciding whether to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) __ cost.
irrelevant
when making decisions, managers should ignore __ costs.
irrelevant
Monthly utility costs are estimated to be $1,200 regardless of the course of action; in this case the utility costs are considered a/an _____ _____
irrelevant cost
if, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should:
keep the product line
if, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should:
keep the product line.
possible advantages of making a product rather than buying it
less dependence on outside suppliers, a smoother flow of parts and materials for production
if a company has more than one potential constraint, the proper combination of products can be found by use of a quantitive method known as __ __.
linear programming
In the _____ run, constrained resources impacts management decisions by eliminated non value added activities such as rework or waiting, or by increasing the capacity of the constrained resources such as hiring more workers, buying bigger or faster machines, or leasing additional space
long
_____ _____ _____ is a specific goal that management wants to achieve over a long term horizon, typically 5-10 years
long term objective
A strategic plan includes _____ term goals which are typically over a 5-10 year period and also include a ____ term or intermediate steps needed to achieve the long term goals
long, short
a decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is a called a(n) __ or __ decision.
make buy
A __________ decision is a decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier.
make or buy
a __ decision is a decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier.
make or buy
Management decision in which relevant costs of making a product internally are compared to the cost of purchasing that product is a _____ _____ _____ ______
make or buy decision
a __ involves determining whether to carry out an activity in the value chain internally or use a supplier.
make or buy decision
a decision to carry out one of of the activities in the value chain internally rather than buy externally from a supplier
make or buy decision
_____ _____ _____ _____ application of incremental analysis that requires managers to decide whether to perform a particular activity or function in house or to purchase it from an outside supplier
make or buy decisions
Materials requisition forms are used for
making journal entries in accounting records and controlling the flow of materials into production.
The Statement of Ethical Professional Practice describes the ethical responsibilities of _______ accountants.
managerial
The _____ _____ budget shows all costs of production other than direct materials and direct labor
manufacturing overhead
_____ _____ _____ budget that estimates the manufacturing overhead costs needed to support budgeted production
manufacturing overhead budget
Manufacturing costs include:
manufacturing overhead, direct labor, and direct materials.
Indirect materials and indirect labor are classified as:
manufacturing overhead.
Customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer ______.
margin
customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer __.
margin
The revenue obtained from selling one additional unit of product is called ______ revenue.
marginal
A _____ budget is a comprehensive set of budgets that covers all phases of an organization's planned activities for a specific period
master
Each component of a(n) _____ budget is based on or provides input for another component
master
The _____ budget is a comprehensive set of budgets that covers all phases of planned activities for a specific period
master
The _____ _____ is a set of interrelated budgets that constitutes a plan of action for a specific period
master budget
_____ _____ comprehensive set of budgets that covers all phases of an organization's planned activities for a specific period
master budget
The best way to handle a constrained resource is to
maximize the capacity of the bottleneck
costs that are relevant in one decision situation:
may not be relevant in another
Costs that are relevant in one decision situation:
may not be relevant in another.
costs that are relevant in one decision situation:
may not be relevant in another.
A major purpose of cost accounting is to:
measure, record, and report product costs.
What does Acid Test ratio assess?
measures how well a company can meet its obligations without having to liquidate or depend too heavily on its inventory
Materials quantity Variance
measures the difference between the actual quantity of materials used in production and the standard quantity of materials allowed for the actual output, multiplied by the standard price per unit of materials
Which of the following statements are true?
mixed costs contain both fixed and variable cost elements and the equation for a straight-line can be used to express the relationship between mixed costs and the level of activity.
Activity-based absorption costing uses _______ costs pools than traditional absorption costing.
more
compared to traditional systems, activity-based costing uses __ cost pools and unique measure of activity.
more
the greater the number of activities in an ABC system, the (more/less) __ costly it is for the company to develop.
more
Manufacturing overhead costs are applied to a particular job (Work in process) by..?
multiplying the predetermined overhead rate by the actual quantity of the allocation base consumed by each job.
the decision to add or drop a product line should be based on the impact the decision will have on:
net operating income
which of the following should not be included in the analysis when making a decision?
non-differential future costs sunk costs
The two levels that standards may be set at are:
normal and ideal.
advantage of using external suppliers
one advantage of using external suppliers instead of vertical integration is that suppliers can pool demand from a number of companies and enjoy economies of scale, which can result in higher quality and lower costs than a company could obtain if it made the parts on its own
What does debt to equity ratio assess?
one type of leverage ratio that indicates the relative proportions of debt to equity at one point in time on a companies balance sheet
The most common budget period is:
one year.
Variable Costing
only those manufacturing cost that vary with output are treated as product costs. Expensed at its entirety each period
The _____ budget feeds directly into the cash budget
operating
The _____ budget is made up of the sales forecast, production budget, direct materials purchases budget, direct labor budget, manufacturing overhead budget, selling and administrative budget, and budgeted income statement
operating
The _____ budgets also affect other elements of the budgeted balance sheet, including budgeted accounts receivable, inventory, accounts payable, and owner's equity
operating
_____ budgets includes sales, productions, and purchases budgets
operating
The best measure of a company's ability to generate sufficient cash to continue as a going concern is net cash provided by:
operating activites.
Cash receipts from interest and dividends are classified as:
operating activities.
The _____ _____ establish goals for the company's sales and production personnel
operating budget
_____ _____ budgets that cover the organization's planned operating activities for a particular period of time
operating budgets
Any final decision to drop or add a business segment is going to hinge primarily on the impact the decision will have on net ___________ __________.
operating income
any final decision to drop or add a business segment is going to hinge primarily on the impact the decision will have on net __ __.
operating income
any final decision to drop or add a business segment is going to hinge primarily on the impact the decision will have on net _______ _______.
operating income
any final decision to drop or add business segment is going to hinge primarily on the impact the decision will have on net __ __.
operating income.
A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as _________ _________.
operating leverage.
Distinguish whether is an operating or financing budget 1. cash budget 2. sales budget 3. raw materials purchases budget 4. selling and administrative expense budget 5. budgeted balance sheet 6. manufacturing overhead budget 7. direct labor budget 8. budgeted income statement 9. production budget
operating= 2, 3, 4, 6, 7, 8, 9 financing= 1, 5
An _____ cost is what you give up when you choose to do something
opportunity
If a company has a resource that could be used for something else, the _____ cost is the profit that could be derived from the best alternative use of the resource
opportunity
Space being used that would otherwise be idle has a(n) __________ cost of zero.
opportunity
When managers are forced to choose one alternative over another due to limited employee time and equipment availability, the business manager is facing _____ costs
opportunity
if a company has a resource that could be used for something else, the __ cost is the profit that could be derived from the best alternative use of the resource.
opportunity
space being used that would otherwise be idle has a(n) __ cost of zero.
opportunity
the potential benefit given up when selecting one alternative over another is a(n) __ cost.
opportunity
A/an _____ _____ is the forgone benefit of choosing to do one thing over another
opportunity cost
The forgone benefit of choosing one decision alternative over another is its _____ _____
opportunity cost
_____ _____ of make or buy decisions occur when a company loses an opportunity by making something internally as opposed to buying it from someone else (vice versa)
opportunity cost
_____ _____ benefits given up when one alternative is chosen over another
opportunity costs
opportunity cost in accounting records
opportunity costs are not found in accounting records because they are not cash outlays. Opportunity costs are relevant to decisions.
if a company has a resource that could be used for something else, the _______ cost is the profit that could be derived from the best alternative use of the resource.
oppportunity
__-__ activities occur regardless of which customers are served, which products are produced or how many batches are run or units made.
organization sustaining
The lean production management approach:
organizes resources around the flow of business processes, tends to result in fewer defects, is sometimes called just-in-time production.
usually, traditional costing __ high-volume products and __ low-volume products
overcosts undercosts
activity-based costing uses numerous __ cost pools.
overhead
in activity-based costing, first-stage allocation assigns __ costs to activity cost pools.
overhead
Ordering materials, setting up machines, assembling products, and inspecting products are examples of:
overhead cost pools.
Managers may make the mistake of assigning idle costs and organization-sustaining costs to products, resulting in _______ product costs and ________ product margins.
overstated, understated
A(n) _____ budget allows employees throughout the organization to have input into the budget setting process
participative
Disadvantages of _____ budgeting include the amount of time consumed and the fact that employees may try to build slack into a budget
participative
_____ _____ method that allows employees throughout the organization to have input into the budget setting process
participative budgeting
A _____ approach to budgeting is more likely to motivate people to work toward an organization's goal than a _____ _____ approach
participative, top down
activity-based costing treats organization-sustaining costs as __ costs.
period
in traditional costing, which type of cost in not included in the product margin?
period
in traditional costing, which type of cost is not included in the product margin?
period
_____ involves developing goals and objectives for the future
planning
_____ involves developing goals for the budget, whereas _____ involves determining if goal have been followed
planning, controlling
Activity-based costing uses more cost _____ than traditional costing.
pools
The costs provided by a well-designed activity-based costing system are:
potentially relevant to a decision.
Overhead applied to a particular job =
predetermined overhead rate X amount of the allocation base incurred by the job
The formal for applying overhead to a specific job is:
predetermined overhead rate x amount of allocation base incurred by job.
The profitability index is computed by dividing the:
present value of cash flows by the initial investment.
Companies that sell products whose prices are set by market forces are called:
price takers.
The end result of the budgeting process is a set of _____ ______ financial statements that include a budgeted income statement, statement of cash flows, and budgeted balance sheet
pro forma
if some products must be cut back because of a constraint:
produce the products with the highest contribution margin per unit of constrained resource
To maximize total contribution margin when a constrained resource exists:
produce the products with the highest contribution margin per unit of the constrained resource
to maximize total contribution margin when a constrained resource exists
produce the products with the highest contribution margin per unit of the constrained resource
Designing and advertising a product are all _____-level activities.
product
designing and advertising a product are all __-level activities
product
Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time. If the company's constraint is machine hours, to maximize profit, they should first fill the demand for
product ABC The company should fill the demand for the product with the highest CM per unit of the constrained resource. ABC's is $2 per minute of machine time (CM of $10/5 minutes) while XYZ's is only $1.50 per minute of machine time (CM of $15/10 minutes.)
__ help companies channel their resources into the most profitable growth opportunities.
product and customer profitability reports
Categories of customer value propositions are:
product leadership, customer intimacy, and operational excellence.
The _____ budget shows the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory
production
The raw materials purchases, direct labor and manufacturing overhead budgets are all based on the ____ budget
production
Once the _____ _____ has been prepared, the raw materials purchases, the direct labor, and the manufacturing overhead budgets can be prepared
production budget
_____ _____ budget that shows how many units need to be produced each period
production budget
The most common reports prepared using ABC data are the product and customer _______ reports.
profitability
the most common reports prepared using ABC data are the product and customer __ reports.
profitability.
effectively managing an organization's constraints is a key to increased:
profits
A flexible budget:
projects budget data for various levels of activity.
linear programming
quantitative method to find the proper combination or mix of products
Any purchased materials that will go into the finished product are first recorded in _______ ________ inventory account.
raw materials
_____ _____ _____ _____ budget that indicates the quantity of raw materials that must be purchased to meet production and raw materials inventory needs
raw materials purchases budget
Company A has sales of $500,000 variable costs of $350,000, and fixed costs of $150,000. Company a has:
reached the break-even point or a contribution margin equal to fixed costs.
It is often possible for a manager to increase the capacity of a bottleneck, which is called __________ the constraint.
relaxing
which of the following involves increasing the capacity of a bottleneck?
relaxing the constraint
Costs that differ between alternatives are called _____ costs
relevant
Costs that differ between alternatives are called __________ costs.
relevant
Only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating __________ costs desirable.
relevant
Only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating___ costs desirable.
relevant
Only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating_________costs desirable
relevant
Only those costs and benefits that differ in total between alternatives are _____ in a decision
relevant
Only those costs and benefits that differ in total between alternatives are _______ in a decision.
relevant
When planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a(n) __________ cost.
relevant
costs that differ between alternatives are called __ costs.
relevant
only those costs and benefits that differ in total between alternatives are __ in a decision.
relevant
value chain
all of the activities from development, to production to after sales service
the machine or process that is limiting overall output is a(n):
bottleneck
make or buy this component part? decision rule:
choose the alternative that has the greatest net incremental revenues over incremental costs
What is a limited resource of some type that restricts the company's ability to satisfy demand?
constraint
sell or process further decisions
continue processing a joint product after the split off point so long as the incremental revenue from such processing exceeds the incremental processing cost incurred after the split off point
if some products must be cut back because of a constraint, produce the products with the highest:
contribution margin per unit of constrained resource
sunk cost
cost that has already been incurred and cannot be avoided regardless of what a manager decides to do
examples of relevant costs
incremental, differential, marginal
allocated common fixed costs can
make a product line appear to be unprofitable
the potential benefit given up when selecting one alternative over another is a(n) _______ cost
opportunity
real or economic depreciation
the reduction in resale value of an asset through use or over time
One mistake companies make when preparing segmented income statements is arbitrarily assigning _____ fixed costs to segments.
untraceable
joint cost
used to describe the costs incurred up to the split off point o Common costs that are incurred to simultaneously produce a variety of end products o Are irrelevant in decisions regarding what to do with a product from the split off point forward
activities ranging from development to production to after-sales service are called a(n) _____ ________.
value chain
vertical integration disadvantages
- companys may fail to take advantage of suppliers who can create the economies of scale advantage by pooling demand from numerous companies - while the economies of scale factor can be appealing a company must be careful to retain control over activities that are essential to maintaining its competitive position
Vertical Integration Advantages
- smoother flow of parts and materials - better quality control - realize profits
Different questions a manager could ask?
- what is the per unit dollar advantage (or dis) of purchasing from the outside supplier? - what is the total cost if you make the product? - what is the net income if you make the product in house compared to outsourcing production
What are the ways in which to calculate the benefit of selecting one alternative over another? (3):
1. an analysis that just looks at the relevant costs and benefits 2. the difference between the net operating income for the two alternatives 3. an analysis that looks at all costs and benefits and identifies those that are differential
Managers may choose to retain an unprofitable line because it: (2)
1. attracts customers 2. it helps sell other products
what techniques describe how a bottleneck should be managed? (3):
1. find ways to increase the capacity of the bottleneck 2. focus business process improvement efforts on the bottleneck 3. ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups
the capacity of a bottleneck can be effectively increased by: (2):
1. focusing business process improvement efforts on the bottleneck 2. subcontracting some of the processing that would be done in that area
What are ways in which to calculate the benefit of selecting one alternative over another? (3) :
1. the difference between the net operating income for the two alternatives 2. an analysis that looks at all costs and benefits and identifies those that are differential 3. an analysis that just looks at the relevant costs and benefits
A cost that can be eliminated in whole or in part by choosing one alternative over another is an
AVOIDABLE cost.
Dropping a product line enables a company to drop the products...
AVOIDABLE fixed costs.
A Business segment should only be dropped if a company can save more in _blank_ costs than it loses in contribution margin.
Fixed Costs
Fixed costs and sunk costs ARE NOT the same thing
Fixed costs and sunk costs ARE NOT the same thing
A company should consider _blank_ when making a decision.
Relevant costs and benefits.
Only those costs and benefits that differ in total between alternatives are _blank_ in a decision.
Relevant. (aka differential cost and differential revenue)
Absorption costing is: Required by GAAP and IFRS Used by most companies for both internal and external reports Rarely Used The preferred method for internal decision making
Required by GAAP and IFRS Used by most companies for both internal and external reports
Deciding what to do with a joint product at the split-off point is a ?
Sell or process further decision (Sprinkle donuts).
in the total cost approach, ?
all the revenue and costs are displayed in the income statement then the different in NOI between the two alternatives is compared
constriant
anything that prevents an organization from satisfying demand o Favor the products that provide the highest contribution margin per unit of the constrained resource
when determining which product or service makes the best use of a constrained resource, a company has to determine which products or customers will maximize:
contribution margin
when making a product line decision, a company may focus on lost _______ ______ and avoidable fixed costs or prepare comparative income statements
contribution margin
relevant cost defintiion
costs that differ between alternatives
irrelevant costs?
do not differ between alternatives and are therefore UNAVOIDABLE
if fixed costs are less than the contribution margin then
dont drop
Drop this segment or retain it? decision rule:
drop a segment if its avoidable fixed costs exceed its contribution margin; or if its segment margin is negattive
if dropping a product line enables a company to avoid more in _______ costs than it loses in contribution margin, then its overall net operating income would improve by eliminating the product line.
fixed
accept a special order? decision rule:
if its incremental revenue exceeds the incremental expense of producing it
continue to process joint products after the split off point? decision rule:
if the incremental revenue after further processing exceeds the incremental costs of more processing
When analyzing a special order, only the_blank_ are relevant.
incremental costs and benefits
A joint product should be processed after split off if the
incremental revenue after split off exceeds the incremental processing cost after split off
when deciding to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) _________ cost
irrelevant
determining whether to carry out an activity in the value chain internally or use a supplier is a ________ decision
make or buy
A decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is called a
make or buy decision.
relaxing or elevating the constraint
manager to increase the capacity of the bottleneck
to identify the costs that are avoidable in a specific decision situation these steps should be followed
o Eliminate costs and benefits that do not differ between alternatives (sunk and future costs) o Use of the remaining cost and benefits that do differ between alternatives in making the decision (differential or avoidable costs)
Isolating relevant costs is desirable for at least two reasons
o Rarely will enough information be available to prepare a detailed income statement for both alternatives o Mingling irrelevant costs with relevant costs may cause confusion and distract attention from the information that is really critical
the capacity of a bottleneck can be effectively increased in a number of ways including:
o Working overtime on the bottleneck o Subcontracting some of the processing that would be done at the bottleneck o Investing in additional machines at the bottleneck o Shifting workers from processes that are not bottlenecks to the process that is the bottleneck o Focusing business process improvement efforts such as Six Sigma on the bottleneck o Reducing defective units
space being used that would otherwise be idle has a(n) ______ cost of zero
opportunity
only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating ________ costs desirable.
relevant
only those costs and benefits that differ in total between alternatives are _________ in a decision.
relevant
when making a decision to continue using a current machine versus purchasing a new machine, what type of costs need to be included in the analysis?
relevant
when planning a trip and deciding to drive your car or take the train, gasoline is a:
relevant
when planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a(n) __________ cost
relevant
a one-time order that is not considered part of the company's normal ongoing business is referred to as a(n) ________ ________ decision
special order
a one-time order that is not considered part of the company's normal ongoing business is referred to as a(n) __________ ________ decision
special order
a cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n) ____________ cost
sunk
costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs
sunk
people have a tendency to assume that if a cost is traceable to a segment, then
the cost is automatically an avoidable cost (not true)
bottleneck
the machine or process that is limiting overall output
split off point
the point in the manufacturing process at which the joint products can be recognized as separate products
When should a special order be accepted?
when the incremental revenue from the special order exceeds the incremental costs of the order
vertically integrated
• When a company is involved in more than one activity in the entire value chain
Identify which of these activities are steps in management's decision making process and place those steps in the order in which they should be executed. 1. Analyze how changes in cost structure affect CVP relationships 2. Make the decision 3. Eliminate the product line 4. Evaluate the costs and benefits of the alternatives 5. Prioritize products to maximize short term profits 6. Determine the decision alternatives 7. Process the product further 8. Review the results of the decision 9. Use cost volume profit analysis to determine sales needed to break even 10. Identify the decision problem
10, 6, 4, 2, 8
ABC Company expects to sell 100,000 units of its primary product in January. Expected beginning and ending finished goods inventory for January are 20,000 and 45,000 units, respectively. How many units should ABC produce?
125,000
If budgeted sales are 10,000 units, the desired ending inventory of finished goods is 5,000 units, and the beginning inventory of finished goods is 2,000 units, required production is
13,000 units (10,000 + 5,000 - 2,000)
What is the return on common stockholder's equity for the company?
13.3%
ABC Inc's expected sales for the first 6 months of the year are as follows month expected unit sales Jan. 12,000 Feb. 15,000 March 16,000 April 20,000 May 22,000 June 25,000 Management believes that an appropriate ending inventory is 25% of current period sales. Calculate the number of units to be produced in March
16,250 (march sales 16,000 + ending inventory (25% of march sales) 4,000 - beginning inventory (25% of february sales) 3,750)
Which step in the management decision making process: determine the decision alternatives, or decide what the potential solutions to the problem are
2
What is the inventory turnover for this company?
2.25 times.
The total cost in the Product Design cost pool is $200,000 with a total activity of 1,600 designs in activity-based costing, the total cost assigned to a customer who had 7 designs done would be $__.
200000/1600 designs=125*7 = 875
Carter production, Inc's required production for the first 6 months of the year is as follows monthrequired production jan 50,000 feb 70,000 march 85,000 april 105,000 may 110,000 june 120,000 Each unit requires 2 pounds of material. Management believes that an appropriate ending inventory is 20% of next month's production needs. Calculate the pounds of material to be purchased in April
212,000 pounds (april production needs (105,000 X 2)210,000 + ending inventory (20% of May production needs: 110,000 X 2 X 20%)44,000 - beginning inventory (20% of April)42,000)
What is the profit margin for this company?
23.5%
Which step in the management decision making process: evaluate the costs and benefits of the decision alternatives that were identified in the previous step
3
What is the receivables turnover for this company?
3.4 times.
Which step in the management decision making process: make the decision based on the info gathered in the previous step
4
B's Blanket's target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. How many blankets need to be sold to achieve the target profit?
40,000
In the activity rate for the Customer Orders activity pool is $20 per order and there are 400 customer orders, the total overhead cost assigned to this cost pool is $__.
400x20=8000
Tom Ellis recently bought a plasma tv and has since stated that he wouldn't recommend it to others. This indicates that Tom has completed which step of the decision making process?
5
Which step in the management decision making process: review the results of the decision with the goal of improving future decision making
5
Put the steps in the decision making process in order 1. make the decision 2. review the results 3. determine the decision alternatives 4. evaluate the costs and benefits 5. identify the decision problem
5, 3, 4, 1, 2
the customer orders cost pool consumes 25% of the indirect factory wages. What amount will be allocated to this cost pool in the first-stage allocation if total indirect factory wages are $500,000
500000x.25=125000
What is the price-earnings ratio for this company?
6 times.
Bark company is considering buying a machine for $180,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $12,000 each year. The cash payback period on this investment is:
6 years.
Organize the following budgets in order of preparation 1. cash budget 2. selling and administrative expense budget 3. manufacturing overhead budget 4. raw materials purchases budget 5. budgeted balance sheet 6. sales budget 7. direct labor budget 8. budgeted income statement 9. budgeted COGS 10. production budget
6, 10, 4, 7, 3, 9, 2, 8, 1, 5
What is the return on assets for this company?
6.8%
if the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product would be $__.
65x120=$7800
A company has the following: Target Profit - $204,000 Fixed Costs - $305,000 Contribution Margin - $40 What is the break-even in unit sales?
7,625
how much cost savings when moving manufacturing operations oversea?
80%
The total cost in the product design cost pool is $200K with a total activity of 1,600 designs. The total cost assigned to a customer who has 7 designs is $____
=$875 ($200K/1.6k=$125 x 7 = $875)
Budgets that are most likely to motivate employees A. are tight but attainable B. contain budgetary slack C. are preparing using a top down approach D. are prepared using easy goals
A
Which of the following could be a constrained resource? A. machine hours B. direct materials C. factory space D. all of the above
D
Abba Inc. is considering dropping a segment. During the prior year, the segment had sales of $207,000 and a contribution margin of $124,000. Fixed expenses consist of salaries $60,000 rent $50,000 advertising $20,000 administrative $35,000 total fixed expenses $165,000 The segment manager's $60,000 salary is a direct fixed cost as is the advertising. Of the administrative expenses, $10,000 is a direct fixed cost and the rest is part of common fixed costs. The rent expense is allocated to segments based on sales and represents a share of the total cost for building. If this segment were dropped, what would happen to the company's overall net operating income? A. overall net income would decrease by $34,000 B. overall net income would decrease by $124,000 C. overall net income would increase by $16,000 D. overall net income would increase by $41,000
A (the company would lose the $124,000 contribution margin. $90,000 of the fixed costs (salary, advertising and $10,000 of administrative) and direct fixed costs, so net income would decrease by $34,000)
What order should you produce products in when there is a constrained resource?
A company should fill the demand for the product with the highest CM per unit first
sell or process further decision
A decision as to whether a joint product should be sold at the split-off point or sold after further processing.
Annuity
A series of identical cash flows
Which of the following may be an advantage of making a part rather than buying it?
A smoother flow of parts and material for production Less dependence on outside suppliers
sales value
A typical approach is to allocate joint costs according to the relative __ __ of the end products.
Machining a part for a product is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Organization-sustaining activity.
A) Unit-level activity.
ABC Lumber spent $1,000 cutting down a tree. The result was 40 unfinished logs that sell for $20 each and 100 bags of sawdust that sell for $1 each. If the unfinished logs are processed into finished lumber at a cost of $8 each, they will sell for $35. A bag of sawdust can be processed into Presto Logs that sell for $1.25 at a cost of $0.75 per bag. Which of the following statements are TRUE concerning whether the logs should be processed into finished lumber and whether the sawdust should be processed into Presto Logs? (check all that apply) A. the logs should be processed B. the sawdust should be sold as is without being processed into Presto Logs C. both the logs and the sawdust should be processed D. the $1,000 cost for cutting down the tree is relevant to the decision
A, B
Which of the following would be an advantage of dropping a division or other segment? (Check all that apply) A. an overall increase in net operating income B. avoiding more direct fixed costs than the company loses in contribution margin C. an overall decrease in other product line sales D. increasing relevant costs that the company incurs
A, B
A continuous or rolling budget (check all that apply) A. keeps managers in continuous planning mode B. adds one period to the end of the budget as each period comes to a close C. helps avoid games at the end of a budget period D. is also known as a zero based budget
A, B, C
When considering a make or buy decision managers should consider (check all that apply) A. qualitative factors B. opportunity costs C. all variable production costs D. all fixed production costs
A, B, C
Relevant costs (check all that apply) A. differ between alternatives B. are also called sunk costs C. occur in the future D. include all costs involved in a decision
A, C
When making a decision either to go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of the DVD would be eliminated. This is an example of which type of cost? (check all that apply) A. avoidable cost B. sunk cost C. relevant cost D. future cost
A, C
Which of the following budgets are NOT needed in service firms (check all that apply) A. production B. selling and administrative C. manufacturing overhead D. cash
A, C
Which of the following statements are true? (check all that apply) A. advertising for a specific product line is a direct fixed cost B. the general manager of a factory that has 3 separate product lines is a direct fixed cost C. direct fixed costs are avoidable if a segment is eliminated D. direct fixed costs will still be incurred if a segment is eliminated
A, C
Financial budgets (check all that apply) A. include the cash budget B. impact the budgeted income statement C. include the capital expenditures budget D. impact the budgeted balance sheet
A, C, D
Which of the following are advantages of budgeting? (check all that apply) A. budgets force managers to think about and plan for the future B. budgeting provides each department with the same amount of money to spend, so that all departments are treated fairly C. budgets provide benchmarks for evaluating performance D. the budgeting process provides lead time to solve potential problems E. budgets promote cooperation and coordination between different areas within an organization
A, C, D, E
When an organization uses a top down approach to budgeting (check all that apply) A. top management sets the budget B. budgetary slack is often a problem C. employees are highly motivated to meet goals D. the budget is imposed on lower levels of the organization
A, D
When preparing a raw materials purchases budget, which of the following is needed to calculate the raw materials to be purchases (Check all that apply) A. raw materials per unit B. budgeted unit sales C. ending finished goods inventory D. beginning inventory of raw materials
A, D
Stephens Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Stephens' per unit manufacturing costs for 20,000 units is cost per unit total VMC $12 $240,000 SS $3 $60,000 D $1 $20,000 AFO $7 $140,000 If the part is purchased, the supervisor position would be eliminated. The special equipment used to manufacture part XYZ has no other used and no salvage value. Total allocated fixed overhead would be unaffected by the decision. Should the company buy the part or continue to make it? A. buy- $100,000 advantage B. continue to make- $60,000 advantage C. buy- $80,000 advantage D. continue to make- $40,000 advantage
B (depreciation isn't a relevant cost. the avoidable costs of making the product are the variable costs plus the supervisor salary of $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make X 20,000 units))
Goodstone Tire Corp. sells tires for $90 each. Per unit costs associated with producing and selling the tires are direct materials $35 direct labor $10 factory overhead $20 The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has no excess capacity A. there will be no incremental profit or loss from the special order B. the incremental loss from the special order will be $25,000 C. the incremental profit from the special order will be $12,000
B (the total revenue of the special order is $65,000 and the cost is $53,000 (DM, DL, VO). The opportunity cost of lost sales is $37,000 (($90 regular cost-$53 of variable cost)X 1,000) for an overall loss of $25,000)
Production order processing is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Organization-sustaining activity.
B) Batch-level activity.
When unit sales are constant, but the number of units produced fluctuates and everything else remains the same, net operating income under variable costing will: A) fluctuate in direct proportion to changes in production. B) remain constant. C) fluctuate inversely with changes in production. D) be greater than net operating income under absorption costing.
B) remain constant.
An analysis of a special order (check all that apply) A. uses the same decision making process as long term pricing decisions B. is different if a company has excess capacity that if it's at full capacity C. should consider the impact on regular customers
B, C
In the long term, companies can manage constraints by (check all that apply) A. prioritize products based on contribution margin B. increasing capacity C. hiring more workers D. eliminating value added activities
B, C
Short term objectives (check all that apply) A. are the starting point of strategic planning B. are an important component of long term objectives C. need to be achieved in one year or less D. are developed after the budget process
B, C
It's important to review the results of decisions because (check all that apply) A. it's important to make sure that all expected costs occurred B. feedback is an important component of managerial accounting C. they're likely to be unexpected costs and benefits D. corrective action may be needed
B, C, D
Incremental analysis (check all that apply) A. is an important component of identifying decision problems B. is also called differential analysis C. considers all costs and benefits of a decision D. may be referred to as relevant costing
B, D
Which of the following statements is true? (check all that apply) A. the general manager of a factory that has 3 separate product lines is a direct fixed cost B. direct fixed costs are avoidable if a segment is eliminated C. direct fixed costs will still be incurred if a segment is eliminated D. advertising for a specific product line is a direct fixed cost
B, D
Which of the following budgets are needed to calculate unit product costs? (check all that apply) A. selling and administrative budget B. manufacturing overhead budget C. cash budget D. direct labor budget E. direct materials budget
B, D, E
Setting up equipment, placing purchase orders, arranging shipments to customers are all examples of:
Batch level activities
A systematic approach that can identify improvement opportunities is:
Benchmarking
A systematic approach to identify the activities that need the most improvement is called ________
Benchmarking
Variable Overhead Efficiency Variance =
SR x AH-SH
The machine or process that is limiting overall outputs is called a(n)
Bottleneck
Format for a Production Budget
Budgeted unit sales Add desired units of ending finished goods inventory Total needs Less units of beginning finished goods inventory Required production in units
Format for a Sales budget
Budgeted unit sales Selling Price per unit Total Sales
Which of the following statements about budget acceptance in an organization is true?
Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process.
A _____ decision is a decision to carry out an activity internally or buy externally from a supplier A. product line B. sell or process C. make or buy D. special order
C
A business segment should only be dropped if a company can save more in fixed costs than it gives up in A. variable costs B. net income C. contribution margin D. segment sales
C
A(n) _____ order is a one time order that is NOT considered part of the company's normal ongoing business A. relevant B. supplier C. special D. standard
C
Budgets help companies A. meet short term objectives B. meet long term objectives C. both A and B D. none of the above
C
Determining decision alternatives A. is an important part of the feedback portion of decision making B. is done using incremental analysis C. is a critical step in the decision making process D. happens throughout the decision making process
C
In deciding whether to sell a product or continue to process it, costs incurred to get to product into its current condition _____ relevant in the decision A. are B. may be C. are not
C
Long term objectives are goals A. managers hope to achieve in 6-12 months B. that are used to develop a strategic plan C. managers hope to achieve in 5-10 years D. that are an integral part of the operating budget
C
Products that can be used in place of one another are called A. segment products B. common products C. substitute products D. complementary products
C
Sales revenue minus all costs (fixed or variable) of a particular division is known as A. gross margin B. contribution magin C. segment margin D. net operating income
C
The final step in the master budgeting process is to prepare the A. sales budget B. cash budget C. budgeted balance sheet D. budgeted income statement
C
To calculate the cash balance before financing on the cash budget A. add the beginning cash to the budgeted cash payments and subtract the budgeted cash receipts B. add the budgeted cash receipts to the budgeted cash payments and subtract the beginning cash balance C. add the beginning cash balance to the budgeted cash receipts and deduct budgeted cash payments D. add the cash borrowed or repaid to the ending cash balance
C
When making a decision A. neither quantitative nor qualitative data should be considered B. only quantitative data should be considered C. both quantitative and qualitative data should be considered D. only qualitative data should be considered
C
Which of the following budgets would be prepared earliest in a company's budgeting process? A. budgeted income statement B. budgeted balance sheet C. raw materials purchases budget D. production budget
D
Stephens Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Stephens' per unit manufacturing costs for 20,000 units is: Variable Manufacturing Cost - $12 per unit, total $240,000. Supervisory Salary - $3 per unit, total $60,000 Depreciation - $1 per unit, total $20,000 Allocated fixed overhead - $7 per unit, total $140,000 If the part is purchased, the supervisory position would be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. Should the company buy the part or continue to make it?
Continue to make - $60,000 advantage. The avoidable costs of making the product are the variable costs plus the supervisor salary or $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make x 20,000 units).
When making a decision, a company may focus on lost ______ ______ and avoidable fixed costs or prepare comparative income statements.
Contribution Margin
When making a product line decision a company may focus on lost ____________ _____________ and avoidable fixed costs or prepare comparative income statemetns
Contribution Margin
I some products must be cut back because of a constraint, produce the product with the highest
Contribution Margin Per Unit of Constrained Resource
When a constraint exists companies should focus on maximizing
Contribution Margin Per Unit of Constraint
Relevant Cost
Cost and benefits that differ in total between two alternatives
In activity based costing another term for activity measure is:
Cost driver
Which of the following might be included in a customer relations cost pool?
Cost of sales calls and customer entertainment.
Budgeted cost of goods sold is based on A. expected production B. actual sales C. actual production D. expected sales
D
Budgeted expenses for costs related to selling the product and managing the business are shown on the _____ budget A. manufacturing overhead B. cash C. ending finished goods inventory D. selling and administrative
D
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are _____ costs A. avoidable B. relevant C. irrelevant D. sunk
D
Raya Company is calculating its expected cash receipts for the month of June. This should NOT include A. cash sales made during June B. credit sales made during May C. credit sales made during June D. credit sales made during July
D
Sunk costs are always A. opportunity costs B. avoidable C. relevant D. irrelevant
D
The decision making approach in which a manager considers only costs and benefits that differ for alternatives is called A. incremental analysis B. outsourcing C. differential analysis D. either A or C
D
The entire budget must be created from scratch every period when using A. participative budgeting B. top down budgeting C. continuous budgeting D. zero based budgeting
D
The process of making a decision A. should consider both relevant and irrelevant costs B. starts with a determination of the decision alternatives C. varies depending upon the decision at hand D. is basically the same for all decisions
D
To calculate the direct labor requirement for each quarter A. multiply the number of direct labor hours required per unit times the number of units to be sold B. add the number of direct labor hours required per unit to the number of units to be produced C. add the number of direct labor hours required per unit to the number of units to be sold D. multiply the number of direct labor hours required per unit times the number of units to be produced
D
To maximize total contribution margin when a constrained resources exists A. produce the products with the lowest unit contribution margin B. produce the products with the highest unit contribution margin C. produce the products with the lowest contribution margin per unit of the constrained resource D. produce the products with the highest contribution margin per unit of the constrained resource
D
What's multiplied by the budgeted unit sales to obtain total sales on the sales budget? A. budgeted units to be produced B. number of units budgeted to be sold C. budgeted gross margin % D. budgeted sales price per unit
D
When making make or buy decisions, managers should consider A. alternate uses for any facility currently being used to make the item B. the costs of direct materials included in making the item C. qualitative factors such as whether the supplier can deliver the item on time and to the company's quality standards D. all of the above
D
Which of the following budgets is affected by the sales budget? A. direct labor budget B. cash receipts and payments budget C. selling and administrative budget D. all of the above
D
Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that: A) variable costing treats only direct materials and direct labor as product cost while absorption costing treats direct materials, direct labor, and the variable portion of manufacturing overhead as product costs. B) variable costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs while absorption costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs. C) variable costing treats only direct materials, direct labor, the variable portion of manufacturing overhead, and the variable portion of selling and administrative expenses as product cost while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs. D) variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.
D) variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.
An increase in the level of activity will have the following effects on unit costs for variable and fixed costs:
D, Remains constant & Decreases.
profit
DECISION RULE: only drop a segment if the company's total __ would increase.
Total cost of a job =
Direct Material + Direct Labor + Applied MOH
The amount of time required to perform an activity is measured by a ______ driver
Duration
Example of a Irrelevant Cost
EX. You're deciding whether to go to a movie or rent a DVD. The rent on your apartment is irrelevant.
Individual product costs calculated using ABC are not listed on ______ reports
EXTERNAL
Predetermined Overhead Rate =
Estimated total Manufacturing Overhead Cost / Estimated total amount of the allocation base
What is the formula for finding the balance at the end of a period?
F=P(1+r)
A duration driver provides a simple count of the number of times that an activity occurs.
False
Absorption costing treats all fixed costs as product costs.
False
Activity-based costing is best proposed, designed and implemented by the accounting department without requiring the time of busy managers.
False
All other things the same, if a divisions traceable fixed expenses decrease then the divisions segment margin will decrease.
False
Batch-level activities are performed each time a unit is produced.
False
Departmental overhead rates will correctly assign overhead costs in situations where a company has a range of products that differ in volume, lot size, or complexity of production.
False
First-stage allocations in an ABC system should not be based on the opinions of employees about how costs should be distributed among activity cost pools.
False
In activity-based costing, all manufacturing costs must be included in product costs.
False
In activity-based costing, as in traditional costing systems, manufacturing costs are not assigned to products.
False
In the second-stage allocation in activity-based costing, costs that were not allocated in the first stage are assigned to the company's most profitable products.
False
Indirect materials can be easily and inexpensively traced to a specific product.
False
Net operating income computed using absorption costing will always be less than net operating income computed using variable costing.
False
Organization-sustaining activities relate to specific customers and are not tied to any specific products.
False
Segmented statements for internal use should not be prepared using the contribution format.
False
The salary paid to a store manager is not a traceable fixed expense of the store.
False
Traditional cost systems tend to overcost standard products and overcost specialty products.
False
True or False: Opportunity costs are not found in accounting records because they are not relevant decisions
False
True or false: CVP analysis investigates company personnel polices, business values, and performance measures for a specific company.
False
Abba, Inc. is considering dropping a product line. During the prior year, the line had sales of $207,000 and a contribution margin of $124,000. Fixed expenses consist of: Salaries $60,000 Rent $50,000 Advertising $20,000 Administrative $35,000 Total Fixed Expenses $165,000 The product line manager's $60,000 salary is avoidable as is the $20,000 of advertising. Of the administrative expenses, $10,000 is avoidable. The rest are general allocated expenses that will not change if the product is dropped. The rent expense is allocated to product lines based on sales and represents a share of the total cost for the building. If this product line is dropped, what will happen to the company's overall net income?
Overall net income will decrease by $34,000. The company will lose the $124,000 contribution margin. Only $90,000 of the fixed costs (salary, advertising, and $10,000 of administrative) are avoidable, so net income will decrease by $34,000.
Usually, traditional costing __ high-volume products and __ low-volume products
Overcosts, undercosts
What is the formula for finding present value?
P= Fn / (1+r)^n
Activity-based costing treats organization-sustaining costs as __ costs.
PERIOD
In traditional costing, which type of cost is NOT included in the product margin?
PERIOD
ABC cost uses more cost ______ than traditional costing
POOLS
Which of these managerial accounting functions are relevant to business majors, such as marketing and human resource management?
Planning, Controlloing, and decision making.
Budgeting is usually most closely associated with which management function?
Planning.
Which is the last step in developing the master budget?
Preparing the budgeted balance sheet.
Designing and advertising a product are all __-level activities
Product
In ABC, ____ are different from those calculated using traditional costing
Product margins
The most common reports prepared using ABC data are the product and customer __ reports
Profitability
Effectively managing an organization's constraints is a key to increased
Profits
Which of the following statements are true?
Raw materials used in production are transferred to WIP as direct materials and when materials are purchased they are recorded in the raw materials inventory account.
Match the ease of adjustment code with the correct cost for these costs: Building lease Selling expense Shipping cost
Red cost - Building lease Yellow cost - Selling expense Green cost - Shipping cost
The best way to handle a constrained resource is to ____________ the capacity of the bottleneck
Relax
Only rarely enough will enough information be available to prepare a detailed income statement for both alternatives in a decision. This makes isolating ____________ costs desirable
Relevant
When identifying costs that are differential, a manager would eliminate costs and benefits that do not differ between alternatives and use the remaining costs and benefits that do differ between alternatives in making the decision. The costs that remain are the differential or _____________ costs
Relevant
When planning a trip and making a decision to drive or take the train the cost of car repairs and maintenance is a(n) __________ cost
Relevant
When planning a trip and deciding to drive your car or take the train gasoline is a:
Relevant Cost
Isabella Canon is considering taking a part time job at a local clothing store. She loves the store and shops there often, but unfortunately, employee discounts are given only to full time employees. If Isabella takes this job, she would have to withdraw from her Tuesday night basket weaving class to work. Accepting the job would also mean that Isabella must give up her volunteer work at the local animal sanctuary, an activity that she enjoys a great deal. The new job would pay approx. $125 per week but would cost Isabella $15 per week in gas. Isabella would be able to keep her Saturday afternoon job at the library that pays $40 per week. Identify if these factors are relevant or irrelevant to Isabella's decision 1. The $125 income from her new job 2. The $40 income from the library 3. The $50 nonrefundable registration fee Isabella paid for the basket weaving class 4. The $15 cost for gas 5. The $75 per month that Isabella spends on clothing 6. The time Isabella spends volunteering at the animal sanctuary
Relevant= 1, 4, 6 irrelevant= 2, 3, 5
Activity rates are used to apply overhead costs to products and customers in the _____ stage allocation
SECOND
Materials Quantity Variance =
SP x AQ-SQ
Labor Efficiency Variance =
SR x AH-SH
Which characteristics are essential for successful implementation of ABC? (Check all that apply.) a) A cross-functional team should be created. b) Top managers must design and implement ABC. c) ABC data should be linked to how people are rewarded. d) Top managers must support ABC
a) A cross-functional team should be created. c) ABC data should be linked to how people are rewarded. d) Top managers must support ABC
In activity-based costing, what is calculated by dividing the total cost of each activity by its total activity? a) Activity rates b) Transaction driver c) Allocation base d) Cost pool
a) Activity rates
Which costing method does not assign organization-sustaining costs to products? a) Activity-based b) Both activity-based and traditional c) Traditional d) Neither activity-based nor traditional
a) Activity-based
Which of the following might be included in a customer relations cost pool? (Check all that apply.) a) Customer entertainment b) Customer orders c) Machine set-ups d) Cost of sales calls
a) Customer entertainment d) Cost of sales calls
In the ease of adjustment coding scheme, which of the following are usually considered Green costs? (Check all that apply.) a) Direct materials b) Direct labor c) Shipping d) Selling expense
a) Direct materials c) Shipping
Activity-based management is focused on which of the following activities? (Check all that apply.) a) Eliminating waste b) Increasing processing time c) Reducing defects d) Pricing decisions
a) Eliminating waste c) Reducing defects
Which of the following items are the same under both ABC and traditional costing> (Check all that apply.) a) Net income b) Total sales c) Total costs d) Product margins
a) Net income b) Total sales c) Total costs
For what reasons is an ABC system more costly to maintain than traditional costing systems? (Check all that apply.) a) Numerous activity measures must be entered into system. b) Numerous activity measures must be collected and checked. c) Large amounts of payroll data must be entered. d) Costs for materials and labor must be entered.
a) Numerous activity measures must be entered into system. b) Numerous activity measures must be collected and checked.
Which of the following are organization-sustaining activities? (Check all that apply.) a) Setting up a computer network b) Arranging for shipping products to a customer c) Heating a factory d) Preparing annual reports
a) Setting up a computer network c) Heating a factory d) Preparing annual reports
Select which activities could be combined into one batch-level activity. (Check all that apply.) a) The number of customer orders b) The number of customers entertained c) The power to run machines d) The products designed e) The number of shipped orders
a) The number of customer orders e) The number of shipped orders
In activity based costing another term for activity measure is: a) cost driver b) cost pool c) volume d) overhead
a) cost driver
A cost pool including costs to entertain customers and make sales calls would be considered a _____ activity. a) customer-level b) unit-level c) product-level d) batch-level
a) customer-level
Activity-based costing is not used for external reporting because: (Check all that apply.) a) external reports are less detailed than internal reports. b) it would not disclose enough information about products. c) ABC does not comply with GAAP. d) it is difficult to make changes in the existing accounting system.
a) external reports are less detailed than internal reports. c) ABC does not comply with GAAP. d) it is difficult to make changes in the existing accounting system.
The action analysis report: (Check all that apply.) a) provides better information for decision making than a traditional cost system. b) shows how difficult it would be to adjust costs given changes in activities. c) results in a different bottom line margin than a traditional ABC product margin d) identifies costs that have been assigned to a product.
a) provides better information for decision making than a traditional cost system. b) shows how difficult it would be to adjust costs given changes in activities. d) identifies costs that have been assigned to a product.
To reconcile ABC product margin to net income: a) subtract overhead costs not assigned to products b) add overhead costs not assigned to products c) do nothing; product margin is equal to net income/loss
a) subtract overhead costs not assigned to products
In ABC, the greater the number of activities (Check all that apply): a) the more accurate the costs are likely to be b) the more costly the system will be to design c) the easier the system will be to implement and maintain
a) the more accurate the costs are likely to be b) the more costly the system will be to design
The use of _______ absorption costing can lead to the omission of segment costs because nonmanufacuting costs are not included as costs of a product.
absorption
An ABC ________ ________ report involves more overhead cost detail than the conventional ABC analysis.
action analysis
The first major step in implementing ABC is to identify the _______ that will form the foundation for the system.
activities
the first major step in implementing ABC is to identify the __ that will form the foundation for the system.
activities
A(n) __ is any event that causes consumption of overhead resources.
activity
A(n) ______ is any event that causes consumption of overhead resources.
activity
In activity-based costing, each cost pool has its own unique measure of _____.
activity
in activity-based costing, each cost pool has its own unique measure of __.
activity
in activity-based costing, what causes the consumption of overhead resources?
activity
overhead includes both manufacturing and non manufacturing costs under:
activity -based costing
under __ costing, overhead costs are not assigned to products if costs are not specific to products.
activity-base
Decide whether it's relevant or irrelevant 1. Decision: should you take the bus or drive your car to school for the semester? Cost: $300 repair bill to fix brakes 2. Decision: Eliminate an unprofitable segment. Cost: unavoidable fixed overhead 3. Decision: make or buy a component used in manufacturing a product. Benefit: selling price of the final product 4. Decision: accept a special order. Cost: variable overhead 5. Decision: sell unassembled and unfinished furniture or sell finished assembled furniture. Cost: the cost of producing an unfinished and unassembled table 6. Decision: XYZ Tire Company is considering dropping one of its 10 models of tires. Cost: common fixed costs 7. Decision: ABC Golf Co. produces custom golf clubs and is considering purchasing the putter from a manufacturer of custom putters. Cost: direct labor 8. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Cost: cost of flight crew 9. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Cost: in flight meals 10. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Benefit: discounted ticket price
irrelevant= 1, 2, 3, 5, 6, 8 relevant= 4, 7, 9, 10
Avoidable Cost
is a cost that can be eliminated by choosing one alternative over another. EX. going to a movie, or renting a DVD
Fixed Cost
is a cost that remains constant, in total, regardless of changes in the level of activity.
The flexible budget:
is a series of static budgets at different levels of activity.
Job-ordering cost:
is a widely used costing method and may be used in almost any type of organization.
opportunity cost
is not an actual cash outlay and is not recorded in the formal accounts of an organization
Planning Budget
is prepared before the period begins and is valid for only the planned level of activity
Revenue Variance
is the difference between ACTUAL total revenue and what the total revenue should have been (revenue in the FLEXIBLE budget)
In developing a flexible budget within a relevant range of activity:
it is necessary to relate variable cost data to the activity index chosen.
If a cost is traced to a segment using activity-based costing,
it may or may not be an avoidable cost of the segment
The two basic types of cost accounting systems are:
job order and process cost systems.
Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called __________ costs.
joint
The split-off point is the point in the manufacturing process at which the __________ products can be recognized as separate products.
joint
Two or more products that are produced from a common input are known as __________ products.
joint
costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called __ costs.
joint
the costs incurred up to the split-off point in a process in which two or more products are produced from a common input are know as __ costs.
joint
the split-off point is the point in the manufacturing process at which the __ products can be recognized as separate products.
joint
two or more products that are produced from a common input are known as __ products.
joint
which of the following statements are true
joint costs are common costs that are incurred to produce two or more products allocation of joint-costs is needed for inventory valuation improper allocation of joint costs can lead to incorrect decisions.
__ are two or more products produced from a common input.
joint products
Management decision in which lost revenue is compared to the reduction of costs to determine the overall effect on profit is _____ _____ _____ _____
keep or drop decision
_____ _____ _____ _____ application of incremental analysis that requires managers to decide whether to retain or eliminate a business segment or product
keep or drop decisions
if, by dropping a product line a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should
keep the product line
The local summer baseball league wants to buy new uniforms for its teams. The current uniforms are quite old and will require $400 in repairs before they can be handed out to players next week for the upcoming season. The old uniforms will be replaced as soon as new ones can be purchased. League leaders have investigated several possible fund raisers and have narrowed the choice down to 2 options: candy sales and car washes. Each option can generate the $2,500 that the new uniforms would cost. Option 1: The candy sales option would require the league to purchase 2,000 candy bars at a cost of $0.75 each. The players and coaches would then sell the bars for $2 each. The league estimates that it would take about 4 weeks to sell the candy and collect all of the money Option 2: The car wash option would require about $200 for buckets, sponges, soap, and towels. A local business has offered to donate the water (estimated at $300 total) and a location. The car washes would be held on Saturdays, and each team would be required to provide workers. Each car wash day is expected to generate $450 in proceeds, so the league expects that it would take 6 weeks to raise $2,500 Which factors are relevant and irrelevant to deciding which project to engage in 1. Repair costs for the old uniforms, $400 2. Initial outlay to purchase the candy bars, $1,500 3. Initial outlay to purchase car wash supplies, $200 4. Cost of water for the car wash option, $300 5. Cost of the new uniforms, $2,500 6. Additional 2 weeks that the car wash option would require to raise the money
relevant= 2, 3, 6 irrelevant= 1, 4, 5
A fixed cost is a cost which:
remains constant in total with changes in the level of activity.
Using a _____ _____, when one budget period passes, another is automatically added at the end
rolling budget
Eliminated of one product may also impact _____ of the remaining products as customers either move to one of the remaining products or move all or part of their business to another company
sales
The _____ budget is used to compute the cash receipts, while the direct materials purchases, direct labor, manufacturing overhead, and selling administrative expense budgets are used to compute budgeted cash payments
sales
The first step in preparing the master budget process is the ____ budget or forecast
sales
The production budget is based upon the _____ budget
sales
joint costs are traditionally allocated among the different products at the split-off point. a typical approach is to allocate joint costs according to the relative __ value of the end products.
sales
joint costs are traditionally allocated among the different products at the split-off point. a typical approach is to allocate the joint costs according to the relative __ value of the end products.
sales
individual customer __ minus individual customer __ equals customer margin.
sales costs
______ _____ estimate of the total sales revenue to be generated in each budget period
sales budget
important chart (order of budgets)
sales budget->selling and admin expense budget production budget-><-ending inventory budget DM DL MOH Cash budget Budgeted income statement Budgeted balance sheet
Non manufacturing costs include:
sales commissions and the CEO's salary.
Which of the following statements are true?
sales commissions are period costs and period costs are expensed in the same period in which they are incurred.
The _____ _____ is the starting point because all of the other budgets are based on it
sales forecast
The ______ ______ is based on last period's sales, industry trends, info from top management about sales objectives, input from research and development, and planned marketing activities
sales forecast
The starting point for preparing the master budget is the _____ _____
sales forecast
_____ ______ number of units expected to be sold each budget period. Serves as the starting point for all other components of the master budget
sales forecast
The relative proportions in which a company's products are sold is referred to as ________ _________.
sales mix.
The calculation to determine target cost is:
sales price-desired profit.
Activity rates are used to apply overhead costs to products and customers in the ____-stage allocation.
second
activity rates are used to apply overhead costs to products and customers in the __-stage allocation.
second
which stage in activity-based costing uses activity rates to apply overhead costs to products?
second
The ______ ______ is the best gauge of the long-run profitability of a segment
segment margin
______ _____ calculated as revenue minus all costs that are directly traceable to a particular business segment
segment margin
Segment Margin = and What does it represent
segment's contribution margin - its traceable fixed costs. It represents the margin available after a segment has covered all of its own traceable costs.
A part or activity of an organization that managers want to gather cost, revenue or profit data about is a(n)
segment.
Deciding what to do with a joint product at the split-off point is a(n) _________ or __________ __________ decision.
sell or process further