Accounting 211 Final Exam

the required sales in units to achieve a target net income is

(fixed cost+target net income) divided by CM per unit

what is the proper sequencing for the master budget

1. sales budget 2. selling and administrative budget 3. budgeted income statement 4. budgeted balance sheet

Why is determination of a relevant range important?

Cost behavior outside the relevant range may be distorted

format of the CVP income statement

Sales - Variable costs - Fixed costs = Net income.

on a CVP income statement

Sales - Variable costs = Contribution margin.

why are budgets useful in the planning process

They help communicate goals and provide a basis for evaluation.

a standard cost is

a predetermined cost.

the linens department of a large department store is

a profit center

1. In incremental analysis, a. all costs are relevant if they change between alternatives. b. costs are not relevant if they change between alternatives. c. only variable costs are relevant. d. only fixed costs are relevant.

a. all costs are relevant if they change between alternatives

The perspectives included in the balanced scorecard approach include all of the following except the a. internal process perspective. b. capacity utilization perspective. c. learning and growth perspective. d.customer perspective

a. capacity utilization perspective

1. Which of the following is not an operating budget? a. cash budget b. production budget c. sales budget d. direct labor budget

a. cash budget

1. What is the key factor in determining sales mix if a company has limited resources? a. Contribution margin per unit of limited resource b. The amount of fixed costs per unit c. Total contribution margin d. The cost of limited resources

a. contribution margin per unit of a limited resource

1. All of the following are relevant in deciding whether to eliminate an unprofitable segment except the segment's a. fixed expenses. b. sales. c. variable expenses. d. contribution margin.

a. fixed expenses

1. All of the following are distinguishing features of managerial accounting except: a. independent audits b. internal users c. reports pertain to subunits of the entity d. to provide special-purpose information

a. independent audits

1. Reducing reliance on human workers and instead investing heavily in computers and online technology will a. reduce variable costs and increase fixed costs. b. have no effect on the relative proportion of fixed and variable costs. c. make the company less susceptible to economic swings. d. reduce fixed costs and increase variable costs.

a. reduce variable costs and increase fixed costs

1. Product costs include each of the following except: a. selling and administrative expenses b. direct labor c. direct materials d. manufacturing overhead

a. selling and administrative costs

A cost is considered controllable at a given level of managerial responsibility if a. the manager has the power to incur the cost within a given time period. b. the cost has not exceeded the budget amount in the master budget. c. it is a variable cost, but it is uncontrollable if it is a fixed cost. d. it changes in magnitude in a flexible budget.

a. the manager has the power to incur the cost within a given time period

Which one of the following will not increase return on investment? a. Variable costs are increased b. An increase in sales c. Average operating assets are decreased d. Variable costs are decreased

a. variable costs are increased

Which of the following statements is true? a. Variances are the differences between total actual costs and total standard costs. b. When actual costs exceed standard costs, the variance is favorable. c. An unfavorable variance results when actual costs are decreasing but standards are not changed. d. All of the above are true.

a. variances are the differences between total actual costs and total standard costs

A static budget is appropriate in evaluating a manager's performance if

actual activity closely approximates the master budget activity

total overhead variance is the difference between

actual overhead costs and overhead costs applied based on standard hours allowed.

the manufacturing cost per unit for absorption costing is

always higher than manufacturing cost per unit for variable costing

relevant costs are always

avoidable costs

1. When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using a. product costing. b. absorption costing. c. variable costing. operations costing

b. absorption costing

1. The opportunity cost of an alternate course of action that is relevant to a make-or-buy decision is a. subtracted from the "Make" costs. b. added to the "Make" costs. c. added to the "Buy" costs. d. none of these answers are correct.

b. added to the make costs

1. Manufacturing overhead includes all of the following except a. depreciation b. direct materials c. indirect labor d. maintenance

b. direct materials

1. Which of the following is done to improve the reliability of the sales forecast? a. Use the sales forecasts from the previous year. b. Employ financial planning models. c. Lengthen the planning horizon to more than a year. d. Rely solely on outside consultants.

b. employ financial planning models

1. The increased use of automation and less use of the work force in companies has caused a trend towards an increase in a. both variable and fixed costs. b. fixed costs and a decrease in variable costs. c. variable costs and a decrease in fixed costs. d. variable costs and no change in fixed costs.

b. fixed costs and a decrease in variable costs

In developing a flexible budget within a relevant range of activity, a. only fixed costs are included. b. it is necessary to relate variable cost data to the activity index chosen. c. it is necessary to prepare a budget at 1,000 unit increments. d. variable and fixed costs are combined and are reported as a total cost.

b. it is necessary to relate variable cost data to the activity index chosen

1. Which of the following steps in the management decision-making process does not generally involve the managerial accountant? a. Determine possible courses of action. b. Make the appropriate decision based on relevant data. c. Prepare internal reports that review the impact of decisions. d. None of these answers are correct.

b. make the appropriate decision based on relevant data

1. Each of the following is a disadvantage of buying rather than making a component of a company's product except that a. the supplier may not deliver on time. b. profitable product lines may be dropped. c. quality control specifications may not be met. d. the outside supplier could increase prices significantly in the future.

b. profitable product lines may be dropped

A major element in budgetary control is a. the preparation of long-term plans. b. the comparison of actual results with planned objectives. c. the valuation of inventories. d. approval of the budget by the stockholders.

b. the comparison of actual results with planned objectives

1. Which of the following statements is false regarding budgeting? a. Many companies use continuous 12-month budgets. b. The length of the budget period is the same for all organizations. c. The most common budget is one-year. d. A budget may be prepared for any length of time.

b. the length of the budget period is the same for all organizations

1. Which of the following costs are classified as a period cost? a. Wages paid to a production department supervisor b. Wages paid to a cost accounting department supervisor c. Wages paid to an assembly worker d. Wages paid to a factory custodian

b. wages paid to a cost accounting department supervisor

the formula to determine the cost of goods manufactured is

beginning work in process inventory+total manufacturing costs-ending work in process inventory

fixed selling expenses are period costs under what type of costing

both absorption and variable costing

the difference between a standard and a budget is

budget is in total, standard is per unit

1. Cost behavior analysis applies to a. manufacturers b. retailers c. all entities d. wholesalers

c. all entities

1. If budgets are to be effective, there must be a. Excess plant capacity. b. A history of successful operations. c. An organizational structure with clearly defined lines of authority and responsibility. d. Independent verification of budget goals.

c. an organizational structure with clearly defined lines of authority and responsibility

1. A company is deciding whether or not to replace some old equipment with new equipment. Which of the following is not considered in the incremental analysis? a. Annual operating cost of the new equipment. b. Annual operating cost of the old equipment. c. Book value of the old equipment. d. Cost of the new equipment.

c. book value of the old equipment

1. Fixed costs normally will not include a. property taxes b. depreciation on buildings and equipment c. direct labor d. supervisory salaries

c. direct labor

1. Each of the following is a period cost except: a. selling expenses b. nonmanufacturing costs c. indirect labor d. administrative expenses

c. indirect labor

1. The financing section of a cash budget is needed if there is a cash deficiency or if the ending cash balance is less than a. the industry average. b. the prior years. c. management's minimum required balance. d. the amount needed to avoid a service charge at the bank.

c. managements minimum required balance

1. Which of the following will always be a relevant cost? a. Fixed cost b. Variable cost c. Opportunity cost Sunk cost

c. opportunity cost

1. Outsourcing production will a. make the company more susceptible to economic swings. b. have no effect on the relative proportion of fixed and variable costs. c. reduce fixed costs and increase variable costs. d. reduce variable costs and increase fixed costs.

c. reduce fixed costs and increase variable costs

1. Which of the following is not an element of manufacturing overhead? a. Factory repairman's wages b. Product inspector's salary c. Sales manager's salary d. Plant manager's salary

c. sales manager's salary

1. Which of the following is an irrelevant cost? a. an avoidable cost b. an incremental cost c. a sunk cost d. an opportunity cost

c. sunk cost

1. If actual direct materials costs are greater than standard direct materials costs, it means that a. actual costs were calculated incorrectly. b. the actual unit price of direct materials was greater than the standard unit price of direct materials. c. the actual unit price of raw materials or the actual quantities of raw materials used was greater than the standard unit price or standard quantities of raw materials expected. d. the purchasing agent or the production foreman is inefficient.

c. the actual unit price of raw materials or the actual quantities of raw materials used was greater than the standard unit price or standard quantities of raw materials expected

1. Hyde Corp.'s cash budget showed total available cash less cash disbursements. What does this amount equal? a. Total cash receipts. b. The amount of financing required. c. The excess of available cash over cash disbursements. d. Ending cash balance.

c. the excess of available cash over cash disbursements

1. Budgeting in not-for-profit organizations a. consists entirely of budgeted contributions. b. is not important because they are not profit-oriented. c. usually starts with budgeting expenditures, rather than receipts. d. is necessary only if some product is produced and sold.

c. usually starts with budgeting expenditures, rather than receipts

the direct materials and direct labor budgets provide info for preparing the

cash budget

the most important output in preparing the financial budgets is the

cash budget

return on investment is calculated by

controllable margin divided by average operating assets

a critical factor in budgeting for a service firm is to

coordinate professional staff needs with anticipated services

the maintenance department of a manufacturing company is a

cost center

1. Which of the following stages of the management decision-making process is improperly sequenced? a. Assign responsibility for decision -> Determine possible courses of action. b. Evaluate possible courses of action. -> Make decision. c. Identify the problem. -> Determine possible courses of action. d. Assign responsibility for the decision. -> Identify the problem.

d. assign responsibility for the decision-->identify the problem

1. An appropriate activity index for a college or university for budgeting faculty positions would be the a. Faculty hours worked. b. Number of administrators. c. Number of days in the school term. d. Credit hours taught by a department.

d. credit hours taught by a department

1. Which one of the following does not affect a make-or-buy decision? a. Direct labor b. Variable manufacturing costs c. Opportunity costs d. Incremental revenue

d. incremental revenue

Which one of the following is a correct statement about residual income? a. Its goal is to maximize profits of an investment center. b. It is less effective for evaluating investment centers than ROI. c. It is the ratio of controllable margin to the minimum rate of return on average operating assets. d. It evaluates performance by comparing the return of an investment center with the company's minimum rate of return.

d. it evaluates performance by comparing the return of an investment center with the company's minimum rate of return

which of the following is true about managerial accounting? a. it pertains to a business as a whole b. it must be prepared using GAAP c. it is primarily for internal users such as stockholders and creditors d. it provides more detailed info than financial accounting does

d. it provides more detailed info than financial accounting does

1. Cost structure refers to the relative proportion of a. selling expenses versus administrative expenses. b. selling and administrative expenses versus cost of goods sold. c. contribution margin versus sales. d. none of the above.

d. none of the above

managerial accounting a. is governed by generally accepted accounting principles. b. is limited to cost data. c. pertains to the entity as a whole and is highly aggregated. d. places emphasis on special-purpose information.

d. places emphasis on special-purpose info

1. The total materials variance is equal to the a. materials price variance. b. difference between the materials price variance and materials quantity variance. c. product of the materials price variance and the materials quantity variance. d. sum of the materials price variance and the materials quantity variance.

d. sum of the materials price variance and the materials quantity variance

in a production budget, total required production units are the budgeted sales units plus

desired ending finished goods units minus beginning finished goods

a variance is a

difference between a standard and actual value

examples of product costs

direct labor, indirect labor, factory utilities, raw materials

How is the degree of operating leverage computed

divide total contribution margin by net income

If an unprofitable segment is eliminated variable expenses of the eliminated segment will be

eliminated

An overly optimistic sales budget may result in

excessive inventories

1. True or false: At the break-even point, contribution margin equals total variable costs. ________________

false

True or false: Indirect material costs are costs that are easily traced to products because of their physical association with the finished product

false

the balanced scorecard approach incorporates

financial and nonfinancial measures

the break even point in dollars is computed by dividing

fixed costs by CM ratio

accounting has the responsibility for expressing the budget

in financial terms

the process of evaluating financial data that change under alternative courses of action is called

incremental analysis

a revenue that differs between alternatives and makes a difference in decision-making is called

incremental revenue

which responsibility centers generate both revenues and costs

investment and profit centers

The decision rule on whether to sell or process further

is process further if incremental revenue from such processing exceeds the incremental processing costs

an ideal standard

is the optimal level of operation under perfect conditions

labor efficiency is measured by the

labor quantity variance

internal reports that review the actual impact of decisions are prepared by

management accountants

a shift from low margin sales, to high margin sales

may increase net income, even though there is a decline in total units sold

Instead of a production budget, a merchandiser will prepare a

merchandise purchases budget

costs that change in total but not proportionately with changes in the activity level are

mixed costs

a cost structure which relies more heavily on fixed costs makes the company

more sensitive to changes in sales revenue

When comparing a traditional income statement to a CVP income statement,

net income will always be identical on both

A common starting point in the budgeting process is

past performance

Budgeting is most closely associated with which management function?

planning

Unfavorable materials price and quantity variances are generally the responsibility of the

price-purchasing department quantity-production department

cost accounting involves the measuring, recording, and reporting of

product and service costs

direct materials are a...

product cost

If the labor quantity variance is unfavorable and the cause is inefficient use of direct labor, the responsibility rests with the

production department

the investigation of materials quantity variance usually begins in the

production department

using standard costs

promotes greater economy

budgets are good for:

promoting efficiency deterring waste evaluating future performance

The investigation of materials price variance usually begins in the

purchasing department

A cost of goods sold manufactured schedule shows beginning and ending inventories for

raw materials and work in process

Costs that will differ between alternatives and influence the outcome of a decision are

relevant costs

a fixed cost is a cost which...

remains constant in total with changes in the level of activity

The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called

responsibility accounting

for a merchandiser, the starting point in the development of the master budget is the

sales budget

what is the measure of the relative percentage in which a company's products are sold?

sales mix

1. If a firm increases its activity level, a. some costs will change, others will remain the same. b. costs should remain the same. c. most costs will rise. d. no costs will remain the same.

some costs will change, others will remain the same

management by exception means

that material differences will be investigated

contribution margin is

the amount available to cover fixed costs and contribute to income for the company

what is the difference between a merchandising and manufacturing income statement

the costs of goods sold section

in order to maximize profits when limited resources are available a company should concentrate on the producing products with

the highest CM per unit of limited resource

a distinguishing characteristic of an investment center is that

the profitability of the center is related to the funds invested in the center

a measure used frequently to evaluate the performance of the manager in the investment center is

the rate of return on funds invested in the center

the first budget to be prepared of the master budget is

the sales budget

True or false: Cost structure refers to the relative proportion of fixed versus variable costs that a company incurs.

true

True or false: Cost-volume-profit analysis assumes that changes in activity are the only factors that affect cost.

true

True or false: From a quantitative standpoint, a segment should be eliminated if its contribution margin is less than the fixed costs that can be eliminated.

true

True or false: Product costs are costs that are a necessary and integral part of producing the finished product

true

True or false: The formula for computing the break-even point in sales dollars for a company with multiple products or multiple divisions is fixed costs divided by weighted average contribution margin ratio.

true

True or false: margin of safety is the difference between actual sales and sales at the break-even point.

true

true or false Managerial accounting applies to all types of businesses including service, merchandising, and manufacturing, as well as to all forms of business organizations

true

Net income under absorption costing is higher than net income under variable costing when

units produced exceeds units sold

example of a mixed cost

utility costs

what type of cost remains the same per unit at every level of activity

variable cost

companies recognize fixed manufacturing overhead costs as period costs when incurred using

variable costing

the cost applicable to units that have been started into production but not completed is shown as

work in process inventory

Unfavorable labor rate variances may occur as a result of:

worker fatigue or carelessness