acct 2120 exam 2

d. All of the above

The break-even point is defined as a. Net income equals zero b. Total revenue equals total costs c. Contribution margin equals total fixed costs d. All of the above

a. sales less variable costs

The contribution margin is a. Sales less variable costs b. Sales less fixed costs c. Sales less total costs d. All of the above

c. A and B

The contribution margin ratio a. Indicates how much of each sales dollar is available to cover fixed costs b. Indicates how much of each sales dollar is available to provide net income c. A and B d. None of the above

c. contribution margin / net operating income

The degree of operating leverage is computed as a. Net operating income / contribution margin b. Net sales / contribution margin c. Contribution margin / net operating income d. Contribution margin / net sales

d. sensitivity of net income to a given percentage change in sales

The degree of operating leverage measures a. Sensitivity to temperature changes b. Sensitivity of net income to a given percentage change in fixed costs c. Sensitivity of sales to a given percentage change in net income d. Sensitivity of net income to a given percentage change in sales

a. shows expected revenues and expenses at the actual activity level

The flexible budget a. Shows expected revenues and expenses at the actual activity level b. Shows expected revenues and expenses at the expected activity level c. Shows actual revenues and expenses at the actual activity level d. None of the above

c. actual sales less breakeven sales

The margin of safety is computed as a. Net income less breakeven income b. Actual sales less contribution margin c. Actual sales less breakeven sales d. All of the above

d. all of the above

The master budget includes a. The cash budget b. The production budget c. The budgeted income statement and budgeted balance sheet d. All of the above

a. performance report

The planning and flexible budgets, actual results, and activity and revenue and spending variances are shown on a. Performance report b. Master budget report c. Cash budget report d. Cost of goods sold report

b. shows expected revenues and expenses at the expected activity level

The planning budget a. Shows expected revenues and expenses at the actual activity level b. Shows expected revenues and expenses at the expected activity level c. Shows actual revenues and expenses at the actual activity level d. None of the above

c. indirect materials

Which cost below is treated as a product costs under variable costing a. Selling expense b. Administrative expenses c. Indirect materials d. Straight-line depreciation on the factory

a. margin of safety

Which tool shows management how far the company is above the breakeven point? a. Margin of safety b. Operating leverage c. Sales mix d. All of the above

a. contribution format

Which type of income statement is used with variable costing? a. Contribution format b. Traditional format

Merchandise purchases budget

a detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period

Selling and administrative expense budget

a detailed schedule of planned expenses that will be incurred in areas other than manufacturing during a budget period

Sales budget

a detailed schedule showing expected sales expressed in both dollars and units

Management by exception

a management system in which actual results are compared to a budget. Significant deviations from the budget are flagged as exceptions and investigated further

R2

a measure of goodness of fit in least-squares regression analysis. It is the percentage of the variation in the dependent variable that is explained by variation in the independent variable

Account analysis

a method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves

b. period cost

How is fixed overhead treated under variable costing? a. Product cost b. Period cost c. It is capitalized when incurred d. None of the above

b. false

A favorable variance is always a good thing a. True b. False

a. is a budget on a per unit basis

A standard cost a. Is a budget on a per unit basis b. Is prepared only for prices but not for quantities c. Is prepared only for quantities but not for prices d. None of the above

b. false

All expenses listed on the income statement will also be included in the cash budget a. True b. False

a. actual hours exceed standard hours

An unfavorable labor efficiency variance indicates that a. Actual hours exceed standard hours b. Standard hours exceed actual hours c. The actual rate exceeds the standard rate d. The standard rate exceeds the actual rate

d. both treated the same

Comparing absorption and variable costing methods, selling and administrative expenses are a. Both treated differently b. Selling is treated the same but administrative is treated differently c. Administrative is treated the same but selling is treated differently d. Both treated the same

c. both of the above

Each standard cost has a a. Price (or rate) variance b. Quantity (or efficiency) variance c. Both of the above

c. the overall contribution margin ratio changes

If the sales mix changes a. The overall contribution margin ratio is unchanged b. The contribution margin ratios of the individual products change c. The overall contribution margin ratio changes d. None of the above

b. in the same direction - both will be favorable or both will be unfavorable

If variable overhead is assigned based on direct labor hours, then the efficiency variances for direct labor and variable overhead will be a. In opposite directions - one will be favorable and the other unfavorable b. In the same direction - both will be favorable or both will be unfavorable c. Neither of the above

a. direct materials purchased

In computing the direct materials price variance, use the a. Direct materials purchased b. Direct materials used in production c. Direct materials in ending inventory d. None of the above

b. direct materials used in production

In computing the direct materials quantity variance, use the a. Direct materials purchased b. Direct materials used in production c. Direct materials in ending inventory d. None of the above

d. all of the above

Standard costs are prepared for a. Direct materials b. Direct labor c. Variable overhead d. All of the above

b. practical standards

Standard costs should be based on a. Ideal standards b. Practical standards c. Loose standards d. Accounting standards

b. measure the differences between the planning budget and flexible budget

The activity variances a. Measure the differences between the flexible budget and actual results b. Measure the differences between the planning budget and flexible budget c. Measure the differences between the planning budget and actual results d. None of the above

c. shows actual revenues and expenses at the actual activity level

The actual results Shows expected revenues and expenses at the actual activity level Shows expected revenues and expenses at the expected activity level Shows actual revenues and expenses at the actual activity level None of the above

a. measure the differences between the flexible budget and actual results

The revenue and spending variances a. Measure the differences between the flexible budget and actual results b. Measure the differences between the planning budget and flexible budget c. Measure the differences between the planning budget and actual results d. None of the above

a. the relative proportions in which products are sold

The sales mix refers to a. The relative proportions in which products are sold b. The relative proportions in which costs are allocated to products c. The relative proportion of net income to total costs d. None of the above

c. 6

There are a total of _ standard cost variances a. 2 b. 4 c. 6 d. 12

d. all of the above

Variable costing a. Is an alternative for internal management reports b. Is not in accordance with GAAP c. Includes only variable manufacturing costs as product costs d. All of the above

c. price variance

When computing standard cost variances, the difference between actual and standard price multiplied by actual quantity yields a(n) a. Combined price and quantity variance b. Efficiency variance c. Price variance d. Quantity variance

b. compute a single breakeven point for the entire company using the overall contribution margin ratio

When computing the breakeven point involving the sale of multiple products a. Compute a separate breakeven point for each product b. Compute a single breakeven point for the entire company using the overall contribution margin ratio c. Compute a single breakeven point for the entire company using highest individual product contribution margin ratio d. None of the above

b. is greater under absorption costing than variable costing

When inventory increases (i.e., production > sales) then net operating income a. Is the same under variable and absorption costing b. Is greater under absorption costing than variable costing c. Is lesser under absorption costing than variable costing d. Is greater under variable costing than absorption costing

d. A and C only

When preparing the cash budget, the cash collections from customers would include a. All cash sales in the budget period b. All credit sales in the budget period c. All collections on credit sales in the budget period d. A and C only

d. all of the above

When preparing the cash budget, the cash expenditures would include a. Payment to suppliers for inventory b. Payment for purchase on equipment c. Payment of dividends d. All of the above

c. cash budget

Which budget is generally the single most important budget? a. Direct materials budget b. Direct labor budget c. Cash budget d. Sales budget

Continuous budget / perpetual budget

a 12-month budget that rolls forward one month as the current month is completed

Planning budget

a budget created at the beginning of the budgeting period that is valid only for the planned level of activity

Ending finished goods inventory budget

a budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet

Super-variable costing

a costing method that classifies all direct labor and manufacturing overhead costs as fixed period costs and only direct materials as a variable product cost

Engineering approach

a detailed analysis of cost behavior based on an industrial engineer's evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs

Standard cost card

a detailed listing of the standard amounts of inputs and their costs that are required to produce one unit of a specific product

Budget

a detailed plan for the future that is usually expressed in formal quantitative terms

Cash budget

a detailed plan showing how cash resources will be acquired and used over a specific time period

Direct materials budget

a detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories

Production budget

a detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs

Manufacturing overhead budget

a detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period

Direct labor budget

a detailed plan that shows the direct labor-hours required to fulfill the production budget

Participative budget / self-imposed budget

a method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement

High-low method

a method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels

Least-squares regression method

a method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors

Master budget

a number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet

Flexible budget

a report showing estimates of what revenues and costs should have been, given the actual level of activity for the period

Responsibility accounting

a system of accountability in which managers are held responsible for those items of revenue and cost - and only those items - over which they can exert significant control. The managers are held responsible for differences between budgeted and actual results.

Independent variable

a variable that acts as a causal factor; activity is the independent variable, as represented by the letter X, in the equation Y = a + bx

Dependent variable

a variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y, in the equation Y = a + bx

Price variance

a variance that is computed by taking the difference between the actual price and the standard price and multiplying the result by the actual quantity of the input

Quantity variance

a variance that is computed by taking the difference between the actual quantity of the input used and the amount of the input that should have been used for the actual level of output and multiplying the result by the standard price of the input

Linear cost behavior

cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity

Standard hours per unit

the amount of direct labor time that should be required to complete a single unit of product, including allowances for breaks, machine downtime, cleanup, rejects, and other normal inefficiencies

Standard quantity per unit

the amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies, such as scrap and spoilage

Standard quantity allowed

the amount of direct materials that should have been used to complete the period's actual output. It is computed by multiplying the actual number of units produced by the standard quantity per unit

Materials price variance

the difference between a direct material's actual price per unit and its standard price per unit, multiplied by the quantity purchased

Activity variance

the difference between a revenue or cost item in the flexible budget and the same item in the static planning budget. An activity variance is due solely to the difference between the actual level of activity used in the flexible budget and the level of activity assumed in the planning budget

Spending variance

the difference between the actual amount of the cost and how much the cost should have been, given the actual level of activity. A favorable (unfavorable) spending variance occurs because the cost is lower (higher) than expected, given the actual level of activity for the period

Labor rate variance

the difference between the actual hourly labor rate and the standard rate, multiplied by the number of hours worked during the period

Labor efficiency variance

the difference between the actual labor-hours taken to complete a task and the standard hours allowed for the actual output, multiplied by the standard hourly labor rate

Variable overhead efficiency variance

the difference between the actual level of activity (direct labor-hours, machine-hours, or some other base) and the standard activity allowed, multiplied by the variable part of the predetermined overhead rate

Materials quantity variance

the difference between the actual quantity of materials used in production and the standard quantity allowed for the actual output, multiplied by the standard price per unit of materials

Revenue variance

the difference between the actual revenue for the period and how much the revenue should have been, given the actual level of activity. A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for the period

Variable overhead rate variance

the difference between the actual variable overhead cost incurred during a period and the standard cost that should have been incurred based on the actual activity of the period

Standard rate per hour

the labor rate that should be incurred per hour of labor time, including employment taxes and fringe benefits

Standard price per unit

the price that should be paid for each unit of direct materials. It should reflect the final delivered cost of those materials

Planning

the process of establishing goals and specifying how to achieve them

Control

the process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change

Standard cost per unit

the standard quantity allowed of an input per unit of a specific product, multiplied by the standard price of the input

Standard hours allowed

the time that should have been taken to complete the period's output. It is computed by multiplying the actual number of units produced by the standard hours per unit