Accounting Test 2 T/F

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A contribution approach income statement can usually be easily prepared from the info contained in a corporation's published income statement

False

A transaction driver provides a measure of the amount of time required to perform an activity

False

Absorption costing treats fixed manufacturing overhead as a period cost, rather than as a product cost

False

Activity based management seeks to eliminate waste by allocation costs to products that waste resources

False

Activity rates in activity based costing are computed by dividing costs from the second-stage allocations by the activity measure for each activity cost pool

False

All other things equal, the margin of safety in a company with high fixed costs and low variable costs will tend to be higher than the margin of safety in a similar company that has low fixed costs and high variable costs

False

All other things the same, an increase in variable expense per unit will reduce the break even point.

False

All other things the same, if the fixed expenses increase in a company then one would expect the margin of safety to increase.

False

An activity based costing system is generally easier to set up and run than a traditional cost system.

False

Assuming the LIFO inventory flow assumption, if production is less than sales for the period, absorption costing NOI will generally be greater than variable costing NOI

False

At the break-even point, variable expenses and fixed expenses are equal

False

Batch level activities are performed each time a unit is produced

False

Direct materials is considered to be a product cost under variable costing but not absorption costing

False

In 2 companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be higher in the company with a higher proportion of fixed expenses in its cost structure.

False

In Activity based costing, non manufacturing costs are not assigned to products

False

In activity based costing, as in traditional costing systems, non-manufacturing costs are not assigned to products

False

In traditional costing, some manufacturing costs may be excluded from product costs.

False

On a CVP graph for a profitable company, the line representing total expenses is steeper than the line representing total revenue

False

On a CVP graph, the revenue line will be shown below the total expense line for any activity level above the break even point

False

The first-stage allocation in activity based costing is the process by which overhead costs are assigned to products before they are assigned to customers

False

The impact on net operating income of a given dollar change in sales can be computed by multiplying the contribution margin by the dollar change in sales

False

Under conventional absorption costing, the fixed costs associated with idle production capacity are not included as part of the product cost

False

Under variable costing, the unit product cost contains some fixed manufacturing overhead cost.

False

When sales exceeds production for a period, absorption costing net income will generally be greater than variable costing net income

False

1st stage allocation in activity based costing is the process by which overhead costs are assigned to activity cost pools

True

A duration driver provides a measure of the amount of time required to perform an activity

True

ABC company sells a single product for $25. The variable expense per unit is $15 and the fixed expense per unit is $5 at the current level of sales. The company's net operating income will increase by $10 if one more unit is sold.

True

Absorption costing treats all manufacturing costs as product costs

True

Activity based costing involves a two stage allocation in which overhead costs are first assigned to departments and then to jobs

True

Activity based costing uses a number of activity cost pools, each of which may have a different allocation base

True

All other things the same, a decrease in variable expense per unit will reduce the break-even point.

True

All other things the same, a reduction in the variable expense per unit will decrease the break even-point.

True

All other things the same, an increase in total fixed expenses will increase the break-even point?

True

At the break-even point, the total contribution margin and fixed expenses are equal.

True

Direct labor is always considered to be a product cost under variable costing

True

Duration drivers ordinarily require more effort to record than transaction drivers.

True

In ABC, organization-sustaining costs should not be included in product costs for internal management reports that are used for decision making. However, companies frequently include org costs in product costs to satisfy external reporting requirements

True

In activity based costing, some manufacturing costs can be excluded from product costs.

True

In the preparation of financial statements using variable costing, fixed manufacturing overhead is treated as a period cost

True

NOI is affected by the number of units produced when absorption costing is used

True

Product level activities relate to specific products and typically must be carried out regardless of how many batches are run or units of product are manufactured

True

The contribution margin ratio measures the effect on the total contribution margin of a given change in total sales

True

The cost assigned to units in inventory are typically lower under variable costing than under absorption costing

True

The degree of operating leverage is greatest at sales levels near the break-even point and decreases as sales rise

True

The profit in cost-volume profit equations is the same as the net operating income on a contribution income statement

True

Under absorption costing, fixed MOH is treated as a product cost.

True

Under absorption costing, it is possible to defer a portion of the fixed MOH costs of the current period to future periods through the inventory account

True

Under absorption costing, the profit for a period is affected by a change in the number of units of finished goods inventory

True

Under variable costing, fixed MOH is not treated as a product cost

True

Under variable costing, product costs consist of direct materials, direct labor, and variable manufacturing overhead.

True

When the number of units in work in process and finished goods inventories increase, absorption costing net income will typically be greater than variable costing net income

True

In general, duration drivers are more accurate measure of the consumption of resources than transaction drivers

true


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