Cost Final Exam
A decision model is an informal method for making a choice, using simpler methods like surveying.
False
A favorable expense variance results when actual costs exceed budgeted costs
False
A favorable flexible-budget variance for variable costs may be the result of using more input quantities than were budgeted
False
A favorable variance can be automatically interpreted as "good news"
False
A favorable variance indicates that budgeted costs are less than actual costs
False
A favorable variance should be ignored by management
False
A firm's inefficiencies such as the wastage of direct materials, are incorporated in past data. Hence the data represents the ideal performance of a firm.
False
A flexible-budget variance pertaining to revenues is often called a sales-volume variance
False
A standard price is the minimum price a company will have to pay for a unit of input
False
A sunk cost is relevant cost in decision making
False
An incremental product cost is generally a fixed cost
False
An unfavorable variance is conclusive evidence of poor performance
False
Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one-time-only special orders
False
Business function costs are the sum of all variable and fixed costs in all business functions of the value chain
False
Equal weight must be given to qualitative factors and quantitative non-financial factors while making decisions
False
Feedback from previous decisions uses historical information and, therefore, is irrelevant for making future predictions
False
For one-time-only special orders, fixed costs may be relevant but NOT variable costs
False
For revenues items, a favorable variance means that actual revenues are less than expected
False
From the perspective of control, the direct materials price variance should be isolated at the time of sales
False
Full costs of a product include variable and fixed costs in a particular business function in the value chain
False
If variance analysis is used for performance evaluation, managers are encouraged to meet targets using creativity and resourcefulness
False
One advantage of using standard times to develop a budget is they are simple to compile, are based solely on the past actual history, and do not require expected future changes to be taken into account.
False
Qualitative factors are outcomes that can be easily measured in numerical terms, such as the costs of direct labor
False
Revenues that remain the same for two alternatives being examined are relevant revenues
False
Studies show that variance analysis is no longer a popular tool of corporate managers as they have adopted various other forms of performance
False
The only difference between the static budget and flexible budget is that the static budget is prepared using actual prices charged and costs per units incurred
False
To prepare budgets based on actual data from past periods is preferred since past inefficiencies are EXCLUDED
False
When preparing a flexible budget, fixed costs must be adjusted to reflect actual costs at actual output
False
Which of the following is true of relevant information?
Future
In the decision making of a one-time-only special order, it is assumed that accepting the special order is not expected to affect the selling price to other customers
True
Management by exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun) and placing less attention on areas operating as anticipated.
True
Marketing costs will be an irrelevant cost in the decision making of a one-time-only special order
True
Past costs are also called sunk costs because they are unavoidable and cannot be changed no matter what action is taken
True
Past costs themselves are always irrelevant when making decisons
True
Qualitative factors are important in the decision-making process even though they cannot be measured numerically
True
Qualitative factors, as well as relevant revenues and relevant costs need to be considered when selecting among alternatives
True
Quantitative factors, such as direct materials costs, are outcomes that are measured in numerical terms
True
Static-budget variance for operating income is calculated by taking a difference between static-budgeted operating income and actual operating income
True
Sunk costs are irrelevant to decision making
True
The flexible-budget variance is the total of price variance and efficiency variance
True
The price variance is the difference between the actual price and the budgeted price of the input, multiplied by the actual quantity of input
True
The rent paid for an already existing facility is an example of a sunk cost
True
Variable cost per unit is the best product cost to use for the one-time-only special order decisions
True
Variances are used for evaluating performance and for motivating managers
True
When actual revenues exceed budgeted revenues, a favorable variance arises
True
When using variance analysis for performance evaluation, managers often focus of effectiveness and efficiency as two of the common attributes used in comparing expected results with actual results
True
An unfavorable sales-volume variance could result from
competitors taking market share
An example of qualitative factor for the decision-making process is
customer satisfaction as determined by written responses given by customers to survey questions
When there is excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price if
incremental revenues exceed incremental costs
A flexible budget
is developed at the end of the period
Which of the following is a firm's risk of outsourcing the production of a part?
leakage of intellectual property
A favorable efficiency variance for direct materials manufacturing labor indicates that
less direct manufacturing labor-hours were used during production than planned for actual output
Producing on schedule, quality of supplier products or services, realiability, along with costs are all important considerations when
making outsourcing decisions
The emphasis on variance analysis and its use in performance evaluation must be such that
management should set targets that challenge but are reasonably achievable and require creativity and resourcefulness by personnel held accountable
Which of the following costs is NOT considered to calculate the minimum acceptable price of a one-time-only special order?
marketing costs
Unit costs data can most mislead decisions by
not computing unit costs at the same output level
If a company does not use one of its limited resources in the best possible way, the lost contribution to income could be called an
opportunity cost
The term for understanding why actual performance deviates from planned performance is
organized learning
Vien's fashion company retains the services of Kennywood Textiles to perform stain control treatments on its women's dresses. This is the practice known as
outsourcing
Which of the following is an example of non-financial performance measure.
percentage of products started and completed without requiring any rework
Which of the following would be considered in a make-or-buy decision
potential rental income from space occupied by the production area
A purchasing manager's performance is best evaluated using information such as
price and terms bargaining effectiveness, achievement of quality goals, and direct materials price variance
The flexible-budget variance for direct cost inputs can be further subdivided into a
price variance and an efficiency variance
If sales-volume variance was caused by poor-quality products, then the _____________ would be in the best position to explain the variance
production manager
In a make-or-buy decision, which of the following would not be relevant?
property taxes on the plant that will still be necessary even if the product is outsourced
For make-or-buy decisions, a supplier's ability to maintain secrecy of intellectual property is considered a
qualitative factor
Employee morale at Dos Santos, Inc. is very high. This type of information is an example of
qualitative factors
The sales-volume variance is sometimes due to
quality problems leading to customer dissatisfaction
In evaluating different alternatives, it is useful to concentrate on
relevant costs
Which of the following costs always differ among future alternatives
relevant costs
Which of the following is an appropriate step when identifying relevant costs to make a business decision?
separating total costs into variable and fixed components
What is not true or relevant information?
significant past investment amounts are relevant to decision making
Which of the following is not true about one-time-only special orders?
special orders would be accepted if they result in an increase in the contribution margin regardless of capacity and long-term implications
Standard cost per output unit for each variable direct cost input is calculated by multiplying
standard input allowed for one output unit by standard price per input unit
An unfavorable variance indicates that
the actual units sold are less than the budgeted units
Opportunity Costs is defined as
the contribution to operating income that is foregone by not using a limited resource in its next-best alternative use
Effectiveness is
the degree to which a predetermined objective or target is met
A variance is
the difference between an actual result and a budgeted performance
A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were
$600 less than standard for the achieved level of activity
Which of the following is the correct formula for the materials price variance?
(Actual price of input - Budgeted price of input) x Actual quantity of input
Which of the following is the correct formula for the materials price variance?
(Actual price of input - Budgeted price of input) x actual quantity of input
How to find Static-budget variance
(Actual units x Budgeted Selling price) - (Budgeted Units x Price)
Feedback regarding previous actions may affect
- future predictions - implementation of the decision - the decision model
Which of the following can be a reason for a favorable price variance for direct materials?
A decrease in the price of materials due to an oversupply of materials
Explain the difference between a static budget and a flexible budget. Explain what is meant by a static budget variance and a flexible budget variance.
A static budget is one based on the level of output planned at the start of the budgeted costs based on the actual output in the budget period. the only difference between the static budget and the flexible budget is that the static budget is prepared for the planned output, whereas the flexible budget is prepared based on the actual output.
What are sunk costs?
Costs that are unavoidable and cannot be changed no what action is taken
Place the following steps from the five-step decision process in order A= Obtain information including historical costs B= Evaluate C= Make decisions choosing among alternatives D= Make predictions about the future E= Identify the problem and uncertainties
E A D C B
Which of the following is true of flexible budget?
It calculates total variable costs by multiplying actual units by budgeted variable cost per unit
Which of the following statements is true about analyzing a single variance?
It can lead to different other variances
A company has a policy "investigate all variances exceeding $3,000 or 15% of the budgeted cost, whichever is lower." There is a variance of $2,000 in repair and maintenance costs of $12,000. What does the Company do in the given situation?
It deserves more attention as it is more than 15% of total repair costs
Which of the following is true of an opportunity cost?
It is the income foregone by not using a resource in an alternative way
Which of the following is true of variance?
Managers should not simply interpret a favorable variance as good but should understand why the variance occured
If management experiences an unfavorable direct materials efficiency variance, which of the following would not be the possible corrective action?
Negotiate lower prices for material acquisition
When using the five-step decision process, which one of the following steps should be done first?
Obtain information
Relevant data in a make-or-buy decision of a part include which of the following
Some portion of fixed costs that would be incurred whether the product is made or purchased
Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice. Which of the following statements is correct about relevant costs and relevant revenues?
The only relevant item are the costs as they differ between alternatives
Johnson Company had planned for operating income of $10 million in the master budget with a contribution margin of $3 million, but actually achieved operating income of only $7 million and a contribution margin of $2.5 million.
The static-budget variance for operating income is $3 million unfavorable
Which of the following is a disadvantage of using the standards developed by a firm itself to develop a budget?
They are not based on realized benchmarks and can be unrealistic
Which of the following is not true with regards to relevant costs and relevant revenues?
They are sunk costs and historical revenues
Which of the following is true of historical costs?
They are useful for making future predictions
The best label for (Actual price x Actual quantity) - (Budgeted price x Budgeted quantity) is the
Total flexible- budgeted variance
A cost may be relevant for one decision, but NOT relevant for a different decision
True
A difference between the static-budget and the flexible-budget amounts is called the sales-volume variance
True
A master budget is called a static budget because it is developed around a single planned output level
True
A standard is attainable through efficient operations but allows for normal disruptions such as machine breakdowns and defective production
True
A variance is the difference between the actual cost for the current and expected(or budgeted) performance.
True
A variance within an acceptable range is considered to be an "in-control occurance" and calls for no investigation or action by managers
True
Continuous improvement through the use of standard costs is the process of repeatedly identifying the causes of variances, taking corrective actions, and evaluating results.
True
Expected performance is also called budgeted performance
True
For any actual level of output, the efficiency variance is the difference between actual quantity of input used and the budgeted quantity of input allowed to produce actual output, multiplied by the budgeted price
True
For critical items such as product defects, a small variance may prompt investigation
True
If option 1 costs $120 and Option 2 costs $90, then the differential cost is $30
True
In a one-time special order situation, if the price differed by the buyer is less than the absorption cost per unit, the special order may still be profitable since absorption costs include allocated fixed manufacturing overhead
True
In relevant-cost analysis, managers should not consider all variable as relevant and all fixed costs as irrelevant
True
One-time only special orders should only be accepted if
incremental revenues exceed incremental costs
With a direct materials price variance of $40,000 F and direct materials efficiency, direct manufacturing labor price, and direct labor efficiency variances of $60,000 U, and 15,000 U, the write-off to costs of goods sold if these are deemed immaterial would be a debit of $55,000
True
A favorable variance indicates that
actual revenues exceed budgeted revenues
Which of the following information is needed to prepare a flexible budget?
actual units sold
How to find flexible budget for sales?
actual units sold x projected selling price
When evaluating a make-or-buy decision, which of the following needs to be considered?
alternative uses of the production capacity
An efficiency variance reflects the difference between
an actual input quantity and a budgeted input quantity
An incremental cost is
an additional total cost for an activity
When making decisions
appropriate weight must be given to both quantitative and qualitative factors
Sunk costs
are irrelevant for decision making and ignored when evaluating alternatives
Non-financial performance measures
are usually used in combination with financial measures for control purposes
Management by exception is a practice whereby managers focus more closely on
areas not operating as anticipated and less closely on areas that are operating as anticipated
A master budget is
based on the level of expected output at the start of the budget period
The flexible budget contains
budgeted amounts for actual output
Which of the following minimizes the risks of outsourcing?
building close partnerships with the supplier
The formal process of choosing between alternatives is known as a
decision model
When deciding to accept a one-time only special order from a wholesaler, management should
determine whether excess capacity is available
The cost to produce Part A was $20 per unit in 2013 and in 2014 it has increased to $22 per unit. In 2014, Supplier ABC has offered to supply Part A for $18 per unit. For the make-or-buy decision
differential cost are $4 per unit
The degree to which a predetermined objective or target is met is known as
effectiveness
All of the following are examples of quantitative factors except
employee morale
When using the five-step decision process, which one of the following steps should be done last?
evaluation and feedback
Relevant costs are
expected future costs
The best way to avoid misidentification of relevant costs is to focus on
expected future costs that differ among the alternatives
A flexible budget variance can be subdivided into the static-budget variance and the sales-volume variance
false
In a flexible budget
fixed costs are kept at the same level of static budget
Which of the following costs is irrelevant in the decision making of a special order when there is idle production capacity-enough excess capacity to accept the order?
fixed manufacturing costs
Which of the following is a relevant cost to be included in a make-or-buy decision?
fixed salaries that will not be incurred if the part is outsourced
A decision model involves a
formal method of making a choice that often involves both quantitative and qualitative analyses
A relevant cost is a cost that is a
future cost
A relevant revenue is revenue that is a
future revenue and differs among alternative courses of action
Quantitative Factors
include both financial and non-financial information
Which of the following are potential problems managers face in relevant-cost analysis?
incorrect assumptions such as all variable costs are relevant and all fixed costs are not
Which of the following could be a reason for a favorable material price variance?
the purchasing manager bargaining effectively with suppliers
Efficiency is
the relative amount of inputs used to achieve a given output level
Variance analysis should be used
to understand why variances arise and to improve future performance
Which of the following items will be same for a flexible budget and a master budget?
total expected fixed costs
A favorable price variance for direct manufacturing labor might indicate
under skilled employees are being hired
An unfavorable flexible-budget variance for variable costs may be the result of
using more input quantities than were budgeted
Which of the following is an example of sunk costs?
wages to security staffs
Cost variances should be investigated
when the variance is more than certain percentage of budgeted costs, as determined by management
A favorable efficiency variance for direct materials might indicate that
work is scheduled efficiently
An unfavorable efficiency variance for direct manufacturing labor might indicate that
work is scheduled inefficiency
