Exam #1 Multiple Choice

Cost behavior patterns are linear within the relevant range

A common assumption of cost estimation:

Property taxes on the factory.

A common cost that should not be assigned to a particular product on a segmented income statement is:

The cost object to which the cost is being related.

Classifying a cost as either direct or indirect depends upon

Increased, Decreased

If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease, what will be the effect on the contribution margin ratio and the break-even point, respectively? Contribution Margin Ratio: Break-Even Point:

Classified as a common fixed expense and not allocated.

In an income statement segmented by product line, a fixed expense that cannot be allocated among product lines on a cause-and-effect basis should be:

Asset

Is a cost that will be matched with revenues in a future accounting period

Yes, No

Property taxes on factory equipment are an element of: Conversion Cost: Period Cost:

Full Cost

Refers to the cost of manufacturing and selling a unit of product and includes both fixed and variable costs.

An increase in the number of units produced and sold.

A company's break-even point will not be increased by:

The cost per unit of B has remained unchanged.

A is a fixed cost; B is a variable cost. During the current year the level of activity has decreased but is still within the relevant range. We would expect that:

Engineering Estimates

A manager is trying to estimate the manufacturing costs of a new product. The company makes several other products that utilize some of the same manufacturing procedures as the new product. Which cost estimation method would be the best method to determine the total cost of manufacturing the new product?

Contribution Margin; Contribution Margin Per Machine Hour

A manufacturer occasionally has capacity problems in its metal shaping division, where the chief cost driver is machine hours. In evaluating the attractiveness of its individual products for decision-making purposes, which measurement tool should the firm select? If machine-hours DO NOT constrain the number of units to be produced: If machine-hours constrain the number of units to be produced:

Freight Out

Account that would be a period cost rather than a product cost:

Inventoriable Costs

Are regarded as assets until the units are sold.

Learning Phenomenon

As production doubles, the time to produce the latest unit decreases.

Fixed Costs

At the break-even point, the total contribution margin equals total: (CPA adapted)

Products are sold

Direct labor costs will be treated as an expense on the income statement when the resulting:

e) None of the above

During the current year, the volume of output has decreased. In terms of cost per unit of output, we would expect that: a) The fixed cost per unit has remained unchanged. b) The fixed cost per unit has decreased. c) The variable cost per unit has decreased. d) The variable cost per unit has increased. e) None of the above.

Theory Of Constraints

Focuses on determining the optimal product mix when one or more resources restrict the attainment of a goal or objective as well, maximizing the rate of throughput contribution while minimizing investment and other operating costs

Variable, Product Cost

How would miscellaneous supplies used in assembling a product be classified for a manufacturing company?

Fixed, product cost

How would property taxes paid on a factory building be classified in a manufacturing company?

Company A's profits are more sensitive to percentage changes in sales.

If company A has a higher degree of operating leverage than company B, then:

Total cost per unit will decrease.

Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this level of activity, variable costs are 50% of total unit costs. If 10,500 units are manufactured next month and cost behavior patterns remain unchanged the:

Salaries paid to the top management in the company

Not a product cost under full-absorption costing:

Linear Cost Estimates

Tends to understate the slope of the cost line in ranges close to capacity.

Differential Costs

The difference in total costs that result from selecting one choice instead of another.

Net benefit given up from the best alternative use of the capacity

The opportunity cost of making a component part in a factory with no excess capacity is the

Unavoidable fixed overhead

What costs are irrelevant for a special order that will allow an organization to utilize some of its present idle capacity?

Fixed overhead that will continue if the item is purchased.

What costs are irrelevant to the make-or-buy decision?

Decreases, Increases, Decreases

When the level of activity increases within the relevant range, how does each of the following change? Average Cost Per Unit: Total Variable Cost: Fixed Cost Per Unit:

Both A and B are true

Which of the following statements about the theory of constraints is (are) true? (A) The theory of constraints focuses on determining the optimal product mix when one or more resources restrict the attainment of a goal or objective. (B) The theory of constraints focuses on maximizing the rate of throughput contribution while minimizing investment and other operating costs.

Only (1) is true

Which of the following statements is (are) true? (1) The term full cost refers to the cost of manufacturing and selling a unit of product and includes both fixed and variable costs. (2). The fixed cost per unit is considered constant despite changes in volume of activity within the relevant range.

Only (1) is true

Which of the following statements is (are) true? (1). An asset is a cost that will be matched with revenues in a future accounting period. (2). Opportunity costs are recorded as intangible assets in the current accounting period.

D. Both A and B are false.

Which of the following statements regarding differential costs is (are) false? (A) Peak load pricing is the practice of setting prices lowest when the quantity demanded for the product approaches the physical capacity to produce it. (B) An increase in an organization's tax rate will cause an increase in its break-even point

Both A and B are true

Which of the following statements regarding regression analysis is (are) true? (A) One way to control the effects of a nonlinear relationship between total costs and activity is reduce the relevant range. (B) The linear cost estimate tends to understate the slope of the cost line in ranges close to capacity.

d) Both A and B above

Which of the following would a manufacturing company expect to experience as it automates and shifts from variable expenses to fixed expenses? a) A lower margin of safety percentage) b) A higher contribution margin ratio. c) A lower breakeven level of sales. d) Both A and B above)

Sales volume decreases

Which would not cause the breakeven point to change?

Sales price increases by 10%

changes to a company's contribution income statement will always lower the break-even point (either in units or in dollars):

Relevant Range

cost accounting means the range over which cost relationships are valid