Principals of Accounting
Which resource or tool is used to identify unique companies in the SEC's 10-K filing database?
Central Index Key (CIK) Correct! The Central Index Key (CIK) is a unique identifying number for each company in the SEC's EDGAR system.
What is work-in-process inventory?
All material on the factory floor that is not yet completed
Turay Company reported the following data. Price per unit = $20 Fixed cost = $6,000 Break-even number of units = 1,000 units Given these data, compute the variable cost per unit.
$14 per unit
These data are for Ren Miller Company. Total sales revenue$250,000 Number of units sold$100,000 Variable costs$100,000 Fixed costs $50,000
$150,000 Correct! Contribution margin = total sales revenue less variable costs = $250,000 - $100,000 = $150,000.
Garcia Company reported the following data. Price per unit = $10 Variable cost per unit = $7 Fixed cost = $1,500 Number of units sold = 700 units Given these data, compute the contribution margin per unit.
$2.50 per unit
You have been hired to help Garcia Company perform certain types of cost-volume-profit analysis. You attend a meeting with the owners and founders of the company—Talia and Daniel Garcia—and their accountant. The accountant has been able to prepare the following information for this meeting: Contribution margin ratio 15% Fixed costs $100,000 Daniel asks you to help them calculate what the break-even sales revenue would be for the company for future planning purposes. Based on the above data, what is the break-even sales revenue?
$666,667
These data are for Charlotte Martin Company. Sales revenue$500,000 Variable costs$420,000 Break-even number of units100,000 Calculate the total fixed costs when Charlotte Martin sells 100,000 units.
$80,000
Michael Company reported the following data. Price per unit = $10 Variable cost per unit = $7 Fixed cost = $3,300 Given these data, compute the break-even number of units.
1,100 units
A new product line manager approaches you in order to understand how cost behavior and cost-volume-profit analysis affect the overall profitability of the product line for which the manager is currently responsible. You have been able to gather the following cost information for the product line: Average selling price per unit: $10 Fixed manufacturing costs per year: $50,000 Fixed selling and administrative costs per year: $50,000 Total variable costs per unit: $7.50 The product line manager is trying to calculate the break-even point for this product line, using the information you have provided above. What is the contribution margin ratio for this product line, based upon the above information?
25%
The founders of Yvonne Company—Yvonne, Ross, and Harold—are disappointed with the financial performance of their business so far. Yes, they are making money, but the monthly profit of their business has not been enough to justify their quitting their individual jobs in which they had been highly paid. Yvonne, Ross, and Harold have determined that their business needs to generate a total contribution margin of at least $27,000 per month in order for them to continue; otherwise, they will shut down their company and go back to working their former jobs. They would like to know how many units of their product they need to sell each month to generate this $27,000 total contribution margin. Yvonne Company reported the following data. Price per unit = $20 Fixed cost per month = $6,000 Variable cost per unit = $11 How many units must Yvonne Company sell each month in order to reach a total contribution margin of $27,000?
3,000 units
Sousa Company reported the following data. Price per unit = $10 Variable cost per unit = $7 Fixed cost = $1,500 Given these data, compute the break-even number of units.
500 units
Which statement best characterizes the elements and purposes of a balance sheet?
A balance sheet portrays the financial condition of a company at a point in time.
Four tax consulting companies serve very different sets of customers. Which of these four tax consulting companies is most likely to use a process system in determining the cost of each customer engagement?
A company that serves tax customers who are middle-income individuals who all have basically the same tax issues
Lucas works for a professional consulting firm. He has been asked to compare his firm's financial performance to the performance of another firm. Which company should Lucas use as a benchmark for his company's performance
A consulting firm
What is a period cost?
A cost associated with activities occurring outside the factory
What is a stepped fixed cost?
A cost that remains constant in total within a range of activity and then changes in a large amount above a certain threshold of activity
Paradigm Toys is a manufacturing company that produces stuffed animals. In one step of the manufacturing process, raw materials such as fabric, thread, and polyester filling are moved from the warehouse to the production floor. What would be the effect of this event on the company's books?
A decrease in finished goods inventory
Which statement is true with respect to fixed and variable costs?
A fixed cost is fixed in total and decreases per unit as the number of units increases.
What is an important difference in the cost accounts of a merchandising company compared to a manufacturing company?
A merchandising company has no raw materials inventory or work-in-process inventory.
What is process costing?
A method of product costing in which costs are accumulated by process and averaged over all products made during a period
What is a cost driver?
A numerical measure reflecting the amount of a cost associated with a particular overhead cost activity
Which phrase below describes job order costing?
A system in which manufacturing costs are accumulated by separate product orders or batches
What costs are included in manufacturing overhead?
All manufacturing costs that are not classified as direct materials or direct labor
What is manufacturing overhead?
All manufacturing costs that are not classified as either direct materials or direct labor
Companies that use process costing do not specifically identify the costs associated with each job or order being produced. Instead, these companies compute costs on a different basis. What is this basis?
Amount of cost associated with work done for a particular period of time
How often is the Form 10-K filed?
Annually
In an ABC system, how are the costs belonging to a cost pool identified?
By carefully analyzing what activities cause the need for each specific overhead cost
What information should be included on the balance sheet?
Assets and liabilities
Why do companies allocate overhead costs based on estimated overhead numbers instead of actual numbers?
Because overhead costs must be allocated beginning the very first day of the period, but the actual numbers not available until the end of the period
One important result of using an ABC system is more accurate product costing. What is another important result of using an ABC system?
Better decisions made
Yoshida Company manufactures cell phones. Which item is a product cost for Yoshida Company?
Bonuses paid to the phone assemblers who work on the production line
Which types of costs does a manufacturer have?
Both product and period costs
Maria just started a cosmetics company. She purchases makeup and nail polish from a wholesale distributor and sells these products on social media. Which costs will Maria's new company have?
Both product costs and period costs
Which statement describes managerial accounting?
Compares planned and actual results
Which example correctly shows how contribution margin analysis is used by management in making business decisions?
Contribution margin analysis helps management evaluate whether to continue selling a product.
Which activity involves the process of tracking the actual performance of a company?
Controlling
One important result of using an ABC system is more accurate product costing. What is another important result of using an ABC system?
Correct! ABC involves identifying the activities that cause overhead costs and then estimating and allocating those costs based on those activities. The result is much more accurate product costing and better decisions being made.
A successful law firm called Kim and Lee provides legal services to large corporations and employs over 100 attorneys to represent clients. The firm does not purchase products to sell to its clients but focuses solely on providing legal counsel. Which line item must be absent from the firm's income statement?
Cost of goods sold
After reviewing the job order costing plan, Eva wonders if she should go another direction for Gold Leaf Trophies. She is now trying to determine the cost of producing each order the company receives for custom-manufactured trophies. Eva can easily trace the direct materials and the direct labor costs associated with each custom-manufactured trophy. What would be the first step for Eva to consider in implementing an ABC overhead system to allocate overhead to each trophy?
Determine exactly what activities cause overhead costs for each trophy.
Which product costs are substantial in both a service company and a manufacturing company?
Direct labor and overhead
Which item is a product cost?
Direct materials
What are the three categories of manufacturing costs?
Direct materials, direct labor, and manufacturing overhead
How is the predetermined overhead rate calculated for a new product line?
Estimated overhead costs divided by estimated level of activity
Which statement correctly distinguishes the uses of financial accounting information from the uses of managerial accounting information?
Financial accounting information is prepared according to a generally accepted set of rules.
What are differential costs?
Future costs that change as the result of a decision
Leilani and Diego are discussing different types of businesses. They agree that, in terms of cost flows, there are many similarities between a manufacturer of cars, such as General Motors, and a consulting company, such as McKinsey. However, they also agree that there is one very important difference in the costs being incurred by General Motors and McKinsey. What is the important difference in the costs of GM as compared to McKinsey?
GM likely has relatively high materials costs, whereas the materials costs for a McKinsey are relatively low.
Eva is now giving serious thought to implementing an activity-based costing (ABC) system at the custom trophy manufacturer. She wants to make sure she has considered all relevant factors before making this decision. Which statement is correct with respect to implementing an ABC system at the trophy manufacturer?
Implementing an ABC system requires a more careful analysis of the factors that create overhead costs.
What must be true of an indirect cost?
It is a cost that cannot be traced to a specific business unit or product.
What must be true of a direct cost?
It is a cost traceable to a specific business unit.
What is a gain?
Making money from an activity outside the normal activities of a business
Which characteristic is a unique feature of management accounting information?
Management accounting information is composed of both financial and nonfinancial data.
Which statement about managerial accounting data is true?
Managerial accounting data are created based on competitive needs that are unique to the organization.
Which statement identifies a difference between managerial and financial accounting?
Managerial accounting has substantial competitive value, while financial accounting is not a competitive tool.
What is a characteristic of managerial accounting systems that is not also a characteristic of financial accounting systems?
Managerial accounting includes budget and forecast data.
Which group represents the primary users of managerial accounting information?
Managers
For some production processes, job order costing is the correct production costing system to use. With other production processes, process costing is more appropriate. For which product is process more appropriate?
Manufacturing identical residential refrigerators
What is process costing?
Manufacturing identical residential refrigerators
In a job order costing system, how are factory supervisor wages classified?
Manufacturing overhead
What type of cost are the wages paid to a factory supervisor?
Manufacturing overhead
Which type of business purchases finished goods for resale?
Merchandising
Which type of business is a typical retailer?
Merchandising business
Sophie has recently learned about activity-based costing (ABC). Sophie has determined that using an ABC overhead allocation system would result in basically the same pattern of overhead allocation as she is currently getting with her traditional system based on direct labor hours. Should Sophie go ahead and install an ABC system anyway?
No. The cost in terms of time and money would not be worth it.
Which statement is correct with respect to activity-based costing (ABC) overhead allocation?
Overhead is allocated based on a single measure of activity.
Which statement is correct with respect to activity-based costing (ABC) overhead allocation?
Overhead is allocated based on several different measures of activity.
How is overhead allocated in an ABC system?
Overhead per cost driver multiplied by the number of cost driver events
What are sunk costs?
Past costs that cannot be changed
What are sunk costs?
Past costs that cannot be changed by a current decision
Company managers are important users of managerial accounting information. What are the three primary functions of company managers?
Planning, controlling, and evaluating
Which types of costs does a merchandiser have?
Product costs only
1 / 1 What is the most common sequence of the flow of costs through a job order costing system?
Purchase raw materials, transfer raw materials to production, add direct labor and manufacturing overhead costs, transfer the cost of completed goods to finished goods inventory, sell goods and transfer cost to cost of goods sold.
What is the sequence of the flow of costs through a manufacturing operation?
Purchase raw materials, transfer raw materials to production, add direct labor and manufacturing overhead costs, transfer the cost of completed goods to finished goods inventory, sell goods and transfer cost to cost of goods sold.
How often is the Form 10-Q filed?
Quarterly
Eva has been asked to redesign Gold Leaf's old job order costing system. One of the first things Eva notices is that some items are not being recorded correctly. For example, the accounting flow of costs and the actual flow of costs in the production facility do not appear to match up. The raw materials inventory, for example, is incorrectly placed after the finished goods inventory. This is the first thing Eva wants to fix. In what order should Eva place the flow of materials costs through the rest of the production process?
Raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold
Why does the balance sheet not reflect the current value or worth of a company?
SEC regulations do not require most publicly traded companies to use the accounting equation.
What is the formula for the contribution margin?
Sales revenue - variable costs
Which statement is true at the break-even point
Sales revenue - variable costs - fixed costs = $0
Jack just started a business that develops websites for other businesses. Which type of organization is Jack's new business?
Service organization
What does long-run planning include?
Strategic planning and capital budgeting
What is net income?
The amount of cash on hand at the end of the year
The amount of work actually done in a process costing center for the period includes all units started and completed during the period. In addition, other work is included in the quantification of the work done during the period. What other work is included?
The amount of work done to complete the beginning work-in-process inventory and the amount of work done to start the ending work-in-process inventory
What is included in the direct materials cost?
The cost of raw materials that are used directly in the manufacture of products
Which statement is correct with respect to accounting for overhead?
The overhead account is a temporary holding account for overhead costs.
What is true if the quantity sold for a product line is below the break-even point?
The product line is operating at a loss.
What is the relevant range?
The range of volume over which the variable cost per unit is expected to increase
What is owners' equity?
The residual amount representing the net assets available to another party after all obligations have been satisfied
If overhead is underapplied during a period, which statement below is true?
The total cost of goods sold will be understated.
Which statement below is true with regard to fixed costs?
Total fixed costs do not change in total within a relevant range of activity.
Gold Leaf Trophies has discovered an export market for one of the trophies they manufacture, which can be mass-produced. The manufacturing manager understands that process costing can be applied in this situation in order to measure the costs of mass-producing this particular trophy. How would production costs be assigned to this trophy using process costing?
Total manufacturing cost and total units of production would be used to assign production costs equally to identical trophies.
Which statement is true at the break-even point?
Total revenues equal total costs.
Which statement below is true with regard to variable costs?
Total variable costs change in relationship to the volume of activity.
What is an example of an indirect cost in a hospital?
Utility costs for the hospital building
Williams Cable Company markets cable services to local residential homes on a direct sales basis. You are sitting in a meeting attended by representatives of the sales, marketing, and the accounting departments of the company. The sales and marketing personnel explain how many local subscribers they plan to add in the next year to the company's subscriber listing using certain types of sales and marketing approaches. Since the company has excess capacity to add more cable subscribers at the moment, when one more subscriber is added to the subscriber base, which type of costs will increase in a direct proportion to each subscriber added?
Variable
Which item is a period cost?
Wages of secretarial staff
Baby Jude Company manufactures car seats. Your colleague works in the sales and marketing department, and is trying to understand the differences between a product and a period cost for Baby Jude Company including examples for both. Which item is a period cost for Baby Jude Company?
Wages of the janitors in the executive office building
What is the appropriate situation in which to use process costing?
When a company produces a large volume of products using a series of uniform processes
When is job order costing NOT appropriate?
When a company produces products or services in a continuous process in which jobs or products or projects can't be specifically identified
An ABC overhead allocation system is not always substantially better than a traditional system. When does a traditional overhead allocation system work well
When the production process for each different product or project or process is basically the same
An ABC overhead allocation system is not always substantially better than a traditional system. When does a traditional overhead allocation system work well?
When the production process for each different product or project or process is basically the same