Managerial Cost Accounting

Match each term to the cost described. Each term may be used only once. The cost of including one extra child in a day-care center.

Marginal cost

Kentucky Corporation uses a process-cost accounting system. The company adds direct materials at the start of its production process; conversion cost, on the other hand, is incurred evenly throughout manufacturing. The firm has no beginning work-in-process inventory; its ending work in process is 40% complete. Which of the following sets of percentages would be used to calculate the correct number of equivalent units in the ending work-in-process inventory?

Materials, 100%; conversion cost, 40%.

Which of the following inventories would a discount retailer such as Wal-Mart report as an asset?

Merchandise inventory.

Of the following organizations, activity-based costing (ABC) cannot be used by:

None of these are correct, as all these organizations can use ABC.

A hospital administrator is in the process of implementing an activity-based costing system. Which of the following tasks would not be part of this process? Identification of cost pools., Calculation of pool rates., Assignment of cost to services provided., Identification of cost drivers.

None of these, as all these tasks would be part of the process.

Match each term to the cost described. Each term may be used only once. The management of a high-rise office building uses 3,000 square feet of space in the building for its own administrative functions. This space could be rented for $30,000. What economic term describes this $30,000 of lost rental revenue?

Opportunity cost

Wesley Enterprises has determined that three variables play a key role in determining company revenues. To arrive at an objective forecast of revenues for the next accounting period, Wesley should use:

multiple regression.

Activity-based costing systems:

often reveal products that were under- or over-costed by traditional costing systems.

The process of assigning overhead costs to the jobs that are worked on is commonly called:

overhead application.

Economic value added:

possesses characteristics "A" and "B" above. is a dollar amount rather than a percentage., uses a firm's weighted-average cost of capital.

Prepared at the end of the budget-construction cycle.

pro forma financial statements

New technology design engineering: $2,040,000

product-sustaining

If the head of a hotel's food and beverage operation is held accountable for revenues and costs, the food and beverage operation would be considered a(n):

profit center.

The income calculation for a division manager's ROI should be based on:

profit margin controllable by the division manager.

Factors in a decision problem that cannot be expressed in numerical terms are:

qualitative in nature.

When the quantity of materials purchased is not equal to the quantity of material used, most companies base the calculation of the material quantity variance on the:

quantity of direct materials actually used.

Most companies base the calculation of the material price variance on the:

quantity of direct materials purchased.

An accounting information system should be designed to provide information that is useful. To be useful the information must be:

relevant, accurate, and timely.

Fixed costs are costs that:

remain constant as activity changes.

As activity decreases, variable cost per unit:

remains constant.

The concepts and tools used to measure the performance of people and departments are known as:

responsibility accounting.

The Telemarketing Department of a residential remodeling company would most likely be evaluated as a:

revenue center.

The difference between budgeted sales revenue and break-even sales revenue is the:

safety margin.

A manufacturing firm would begin preparation of its master budget by constructing this budget.

sales budget

Sunrise Corporation has a return on investment of 15%. A Sunrise division, which currently has a 13% ROI and $750,000 of residual income, is contemplating a massive new investment that will (1) reduce divisional ROI and (2) produce $120,000 of residual income. If Sunrise strives for goal congruence, the investment:

should be acquired because it produces $120,000 of residual income for the division.

The activity measure selected for use in a variable- and fixed-overhead flexible budget:

should vary in a similar behavior pattern to the way that variable overhead varies.

The assignment of direct labor cost to individual jobs is based on:

the actual time spent on each job multiplied by the wage rate.

A company's sales forecast would likely consider all of the following factors except:

the company's product costing policy.

Direct materials used: $3,640,000

unit-level

In an activity-based costing system, direct materials used would typically be classified as a:

unit-level cost.

The relevant range is that range of activity:

where management expects the firm to operate.

A factory that makes a part has significant idle capacity. The factory's opportunity cost of making this part is equal to:

zero

Which of the following is an appropriate base to distribute the cost of building depreciation to responsibility centers?

Square feet occupied by the responsibility centers.

Aircraft depreciation charges of an airline

Committed fixed

Xin Co., had 3,000 units of work in process on April 1 that were 60% complete. During April, 10,000 units were completed and as of April 30, 4,000 units that were 40% complete remained in production. How many units were started during April?

11000

Michaella, Inc. uses a process-costing system. A newly-hired accountant identified the following procedures that must be performed by the close of business on Friday: 1—Calculation of equivalent units, 2—Analysis of physical flows of units, 3—Assignment of costs to completed units and units still in process, 4—Calculation of unit costs. Which of the following choices correctly expresses the proper order of the preceding tasks?

2, 1, 4, 3.

Which of the following would depict the logical order for preparing (1) a production budget, (2) a cash budget, (3) a sales budget, and (4) a direct-labor budget?

3-1-4-2.

When 5,000 units are produced variable costs are $35 per unit and total costs are $200,000. What are the total costs when 8,000 units are produced?

305000

Which of the following manufacturers would most likely not use a process-cost accounting system?

A builder of customized yachts.

Variances are computed by taking the difference between which of the following?

Actual cost and standard cost.

Consider the following statements about performance reports: I. Performance reports provide feedback to managers and allow them to better control operations. II. Many performance reports have budget, actual, and variance data. III. Performance reports are often structured around a firm's organizational hierarchy—that is, data relating to lower-level units (e.g., departments) are combined and flow into higher-level units (e.g., stores). Which of the above statements is (are) true?

All of the above

The value chain of a manufacturer would tend to include activities related to: research and development., marketing, product design., manufacturing., All of the above

All of the above

Which of the following activities would likely be considered part of The Gap clothing company's value chain: Distributing goods from regional warehouses to local stores., Locating and then negotiating terms with a clothing manufacturer., Designing a new product line., Marketing an existing product line., All of the above

All of the above

Which of the following can have a negative impact on a sale's profitability? Purchase-order changes., Special shipping instructions., Number of required sales contacts (phone calls, visits, etc.)., Accounts receivable collection time., all of the above

All of the above

CVP analysis can be used to study the effect of:

All of the above: Changes in fixed costs on a company's profitability, changes in variable costs on a company's profitability, changes in selling prices on a company's profitability, changes in product sales mix on a company's profitability

Gourmet Restaurants has the following flexible-budget formula: Y = $13PH + $450,000 where PH is defined as process hours. Which of the following statements is (are) true?

All of the above: Gourmet has $450,000 of fixed costs., Each additional hour of process time is expected to cost Gourmet $13., Y would equal the amount shown as "total cost" in the company's flexible budget.

Which of the following combinations of direct-material variances might prompt management to undertake a detailed variance investigation?

All of the above: Price, favorable; quantity, unfavorable., Price favorable; quantity, favorable., Price, unfavorable; quantity, favorable., Price, unfavorable; quantity, unfavorable.

Which of the following is a criticism of standard costing, as applied to today's manufacturing environment?

All of the above: Variance information is usually aggregated (i.e., combined) rather than associated with a particular batch of goods or a specific product line., Traditional standard costing has a fairly narrow orientation, failing to focus on broader issues such as the overall costs of ownership., Standards tend to be relevant for only a short period of time because of shorter product life cycles., Standard costing pays considerable attention to labor cost and labor efficiency, which are becoming a relatively unimportant factor of production.

Which of the following is an issue in the collection of data for cost estimation?

All of the above: outliers, missing data, inflation, mimatched time periods

Standard costs:

All of the above: provide management with a basis for performance evaluations, allow a manager to assess the efficiency of operations, allow a company to practice management by exception, if set correctly, can provide a motivational tool for employees

Zin, Inc. is planning its cash needs for an upcoming period when 85,000 machine hours are expected to be worked. Activity may drop as low as 78,000 hours if some overdue equipment maintenance procedures are performed; on the other hand, activity could jump to 94,000 hours if one of Zin's major competitors likely goes bankrupt. A flexible cash budget to determine cash needs would best be based on:

All of the above: volumes between 78,000 and 94,000 hours

Coastal Airlines has a significant presence at the San Jose International Airport and therefore operates the Emerald Club, which is across from gate 36 in terminal 1. The Emerald Club provides food and business services for the company's frequent flyers. Consider the following selected costs of Club operation: 1. Receptionist and supervisory salaries 2. Catering 3. Terminal depreciation (based on square footage) 4. Airport fees (computed as a percentage of club revenue) 5. Allocated Coastal administrative overheadManagement is exploring whether to close the club and expand the seating area for gate 36. Which of the preceding expenses would the airline classify as unavoidable (select all that apply)?

Allocated Coastal administrative overhead, and Terminal depreciation (based on square footage)

Match each term to the cost described. Each term may be used only once. The cost of feeding 300 children in a public school cafeteria is $450 per day, or $1.50 per child per day. What economic term describes this $1.50 cost?

Average cost

Which of the following statements represents a similarity between financial and managerial accounting?

Both draw upon data from an organization's accounting system.

Which of the following best describes the procedures used in operation costing to assign direct-material and conversion costs to production?

Choice B Direct Material material costs are assigned similar to those in job costing and conversion costs are assigned similar to process costing

A flexible budget is appropriate for a:

Choice B: Sales Commision Budget, Direct Material Budget, and Variable Overhead Budget

Annual business licensing fee paid by a daycare center

Committed fixed

Taurus Company has set various goals, and management is now taking appropriate action to ensure that the firm achieves these goals. One such action is to reduce outlays for overhead, which have exceeded budgeted amounts. Which of the following functions best describes this process?

Controlling

When underapplied or overapplied manufacturing overhead is prorated, amounts can be assigned to which of the following accounts?

Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory.

Which of the following manufacturers would most likely use job-order costing?

Custom-furniture manufacturers.

Which of the following functions is best described as choosing among available alternatives?

Decision making.

Which of the following is a key document in a typical process-costing system?

Departmental production report.

Which of the following statements is true?

Different cost concepts and classifications are used for different purposes.

Match each term to the cost described. Each term may be used only once. The cost of building an automated assembly line in a factory is $700,000; a manually operated assembly line would cost $250,000. What economic term is used to describe the $450,000 variation between these two amounts?

Differential cost

Wages of the assembly-line workers

Direct Labor (DL)

Which of the following statements about the use of direct labor as a cost driver is false?

Direct labor is gaining importance in many manufacturing applications with respect to being a significant cost driver.

Advertising and promotion costs of a do-it-yourself retailer

Discretionary fixed

Which of the following is not an ethical standard of managerial accounting?

Efficiency.

Straight-line depreciation on the factory building

Manufacturing Overhead (MOH)

Which of the following entities would most likely have raw materials, work in process, and finished goods?

Exxon Corporation.

Activity-based costing systems have a tendency to distort product costs.

FALSE

Equivalent-unit calculations are necessary to allocate manufacturing costs between units sold and ending work in process.

FALSE

Generally speaking, companies prefer doing business with customers who order small quantities rather than large quantities.

FALSE

Mismatched time periods is not an issue in the collection of data for cost estimation.

FALSE

Operation costing tends to parallel job-order costing with respect to the treatment of conversion cost.

FALSE

Under- or overapplied manufacturing overhead at year-end is most commonly charged or credited to Work-in-Process Inventory.

FALSE

Is heavily involved with the recordkeeping and reporting of assets, liabilities, and stockholders' equity.

Financial accounting

Is heavily regulated.

Financial accounting

Is involved almost exclusively with past transactions and events.

Financial accounting

Much of the information provided is directed toward stockholders, financial analysts, creditors, and other external parties.

Financial accounting

Briefly distinguish between managerial accounting and financial accounting. Be sure to comment on the general focus, sources of data, users, nature of reports and procedures, and regulation related to the two fields. (10 points)

Financial and Managerial accounting are different in many ways, although they may use some of the same information. Financial accounting's purpose is to provide information to external users such as creditors or investors. Managerial accounting provides information to internal users, such as managers, with the purpose of increasing efficiency or eliminating unnecessary costs. Both financial and managerial accounting use the data provided by the financial accounting system, but managerial accounting may use additional data, such as cost information not provided by the financial accounting system. The nature of reports in managerial accounting is primarily for the managers, whereas the nature of reports in financial accounting follows specified formats and is for external users. Lastly, financial accounting is tightly regulated and must conform to rules specified by FASB. Managerial accounting has no regulations but is only for the purpose of helping managers improve an aspect of the company.

Advertising placed in trade journals

Fixed Cost

Lease payments for the president's automobile

Fixed Cost

Property taxes paid on the factory facilitites

Fixed Cost

Salary of the plant supervisor

Fixed Cost

Straight-line depreciation on the factory building

Fixed Cost

What type of cost exhibits the behavior that follows? Picture about shows cost not changing even at different activity levels

Fixed cost.

Consider the following statements about goal congruence:I. Goal congruence is obtained when managers of subunits throughout an organization strive to achieve the goals set by top management. II. Managers are often more concerned about the performance of their own subunits rather than the performance of the entire organization. III. Achieving goal congruence in most organizations is relatively straightforward and easy to accomplish. Which of the above statements is (are) true?

I and II.

Which of the following statements about similarities between process costing and job-order costing are true? I. Both systems assign production costs to units of output. II. Both systems require extensive knowledge of financial accounting. III. The flow of costs through the manufacturing accounts is essentially the same.

I and III.

Consider the following factors: I. The degree of correlation between consumption of an activity and consumption of a particular cost driver. II. The likelihood that a particular cost driver will induce a desired behavioral effect. III. The likelihood that a particular cost driver will cause an increase in the cost of measurement. Which of these factors should be considered in the selection of a cost driver?

I, II, and III.

Consider the following statements: I. Behavioral scientists find that perfection standards often discourage employees and result in low worker morale. II. Practical standards are also known as attainable standards.III. Practical standards incorporate a certain amount of inefficiency such as that caused by an occasional machine breakdown. Which of the above statements is (are) true?

I, II, and III.

Consider the following costs and decision-making situations: I. The cost of existing inventory, in a keep vs. disposal decision. II. The cost of special electrical wiring, in an equipment acquisition decision. III. The salary of a supervisor who will be transferred elsewhere in the organization, in a department-closure decision. Which of the above costs is (are) relevant to the decision situation noted?

II only.

The following events took place when Managers A, B, and C were preparing budgets for the upcoming period: I. Manager A increased property tax expenditures by 2% when she was informed of a recent rate hike by local authorities. II. Manager B reduced sales revenues by 4% when informed of recent aggressive actions by a new competitor. III. Manager C, who supervises employees with widely varying skill levels, used the highest wage rate in the department when preparing the labor budget. Assuming that the percentage amounts given are reasonable, which of the preceding cases is (are) an example of building slack in budgets?

III only.

Which of the following techniques is not used to analyze cost behavior?

Linear programming.

A field that is becoming more "cross-functional" in nature.

Managerial accounting

Focuses on planning, decision making, directing, and control.

Managerial accounting

May become involved with measures of customer satisfaction, and the amount of actual cost incurred vs. budgeted targets.

Managerial accounting

Much of the field is based on costs and benefits.

Managerial accounting

Tends to focus more on subunits within an entity rather than the organization as a whole.

Managerial accounting

Engine components used in producion activities

Manufacturing Overhead (MOH)

Machine lubricant used in production activities

Manufacturing Overhead (MOH)

Property taxes paid on the factory facilities

Manufacturing Overhead (MOH)

Salary of the plant supervisor

Manufacturing Overhead (MOH)

Which of the following statements is/are correct concerning the application of overhead in a standard costing system driven by process hours?

Overhead application is based on standard process hours allowed.

Advertising placed in trade journals

Period Cost (PC)

Commissions paid to salespeople

Period Cost (PC)

Lease payments for the president's company automobile

Period Cost (PC)

The City of Miami is about to replace an old fire truck with a new vehicle in an effort to save maintenance and other operating costs. Which of the following items, all related to the transaction, would not be considered in the decision?

Purchase price of the old vehicle.

Caveman Software operates stores within five regions. Regional managers are held accountable for marketing, advertising, and sales decisions, and all costs incurred within their region. In addition, regional managers decide whether new stores will open, where the stores will be located, and whether the stores will lease or purchase the facilities. Store managers, in contrast, are accountable for marketing, advertising, sales decisions, and costs incurred within their stores. Ideally, on the basis of this information, what type of responsibility center should the software company use to evaluate its regions and stores?

Regions should be investment centers and stores should be profit centers

Utility charges that include a minimum-use fee, for a small business

Semivariable

Match each term to the cost described. Each term may be used only once. The cost of merchandise inventory purchased five years ago. The goods are now obsolete.

Sunk cost

Which of the following costs can be ignored when making a decision?

Sunk costs.

CFF, Inc. overstated the percentage of work completed with respect to conversion cost on the ending work-in-process inventory. This overstatement caused conversion-cost equivalent units to be overstated.

TRUE

Companies that use a process-cost accounting system would establish a separate Work-in-Process Inventory account for each manufacturing department.

TRUE

Manufacturing overhead is a pool of indirect production costs that must somehow be attached to each unit manufactured.

TRUE

The flow of costs through the manufacturing accounts is essentially the same in both process costing and job-order costing.

TRUE

Variable costs change in direct proportion to a change in the activity level.

TRUE

Which of the following are methods for setting standards?

Task analysis and the analysis of historical data.

Which of the following statements concerning the budget director is false?

The budget director usually has the authority to give final approval to the master budget.

Cost-volume-profit analysis is based on certain general assumptions. Which of the following is not one of these assumptions?

The efficiency and productivity of the production process and workers will change to reflect manufacturing advances.

With respect to overhead, what is the difference between normal costing and standard costing?

Use of standard hours versus actual hours.

Commissions paid to salespeople

Variable

Engine components used in production activities

Variable

Machine lubricant used in production activities

Variable

Surgical supplies used in a hospital's operating room

Variable

Truck fuel consumed by a road construction company

Variable

Wages of the assembly-line workers

Variable

What type of cost exhibits the behavior that follows? Picture that shows the cost per unit not changing at different volume levels

Variable cost.

As production takes place, all manufacturing costs are added to the:

Work-in-Process Inventory account.

Which of the following statements regarding work in process is not correct?

Work-in-Process Inventory is credited when goods are sold.

All of the following actions are likely to increase ROI except:

a decrease in the number of units sold.

The comprehensive set of budgets that serves as a company's overall financial plan is commonly known as:

a master budget.

A trade-off in a decision situation sometimes occurs between information:

accuracy and timeliness.

Flexible budgets reflect a company's anticipated costs based on variations in:

activity levels.

Sting Corporation debited Cost of Goods Sold and credited Manufacturing Overhead at year-end. On the basis of this information, one can conclude that:

actual overhead exceeded applied overhead.

A budget serves as a benchmark against which:

actual results can be compared.

Manufacturing-run/set-up charges: $115,000

batch-level

Materials receiving: $318,000

batch-level

Within the relevant range of activity, costs:

can be estimated with reasonable accuracy.

A company's plan for the acquisition of long-lived assets, such as buildings and equipment.

capital budget

Based on many other master-budget components.

cash budget

The break-even point is that level of activity where:

contribution margin equals fixed cost.

In a process-costing system, manufacturing costs are accumulated by:

department or process, and time period.

The term "management by exception" is best defined as:

devoting management time to investigate significant variances.

Costs that can be easily traced to a specific department are called:

direct costs.

Conversion costs are:\

direct labor and manufacturing overhead.

When using normal costing, the total production cost of a job is composed of:

direct material, direct labor, and applied manufacturing overhead.

Work-in-process inventory is composed of:

direct material, direct labor, and manufacturing overhead.

A cost center manager:

does not have the ability to produce revenue.

Unit costs in a process-costing system are derived by using:

equivalent units.

Equipment depreciation: $92,000

facility-level

General management salaries: $1,564,000

facility-level

Plant rent, utilities, and taxes: $1,229,000

facility-level

A company's plan for the issuance of stock or incurrence of debt.

financial budget

In the two-stage cost allocation process, costs are assigned:

from service departments, to production departments, to jobs.

The ROI calculation will indicate:

how effectively a company used its invested capital.

ROI is most appropriately used to evaluate the performance of:

investment center managers.

A standard cost:

is a budget for the production of one unit of a product or service.

Manufacturing overhead:

is a pool of indirect production costs that must somehow be attached to each unit manufactured.

A static budget:

is based on one anticipated activity level.

A manufacturing firm produces goods in accordance with customer specifications, commencing production upon receipt of a purchase order. To accumulate the cost of each order, the company would use a:

job-cost record.

Process costing is used to account for:

large numbers of identical products that are produced in a continuous manufacturing environment.

The primary difference between normalized and actual costing methods lies in the determination of a job's:

manufacturing overhead costs.

Depreciation of factory equipment would be classified as:

manufacturing overhead.