ACCT 431 Test & Exam #1
With a constraining resource, managers should choose the product with the
highest contribution margin per unit of the constraining resource
Goodness-of-fit measures how well the predicted values in a cost estimating equation
match the actual cost observations
A cost function is a
mathematical description of how a cost changes with changes in the level of an activity relating to that cost
Unit cost data can most mislead decisions by
not computing unit costs at the same output level
When deciding to lease a new cutting machine or continue using the old machine, the irrelevant cost is
$50,000, cost of the old machine
All of the following are examples of quantitative factors except
employee morale
Which of the following statements best define a product differentiation strategy?
It is an organization's ability to offer products or services its customers perceive to be superior and unique relative to the products or services of its competitors.
Put the following steps in order for using the high-low method of estimating a cost function: A = Identify the cost function B = Calculate the constant C = Calculate the slope coefficient D = Identify the highest and lowest observed values
A D C B
Which of the following statements is true of the internal-business-process perspective of a balanced scorecard?
Internal-business-process improvement targets are often determined after benchmarking against an organization's main competitors standards.
Which of the following statements is true of strategic analysis of operating income?
Change in operating income from one period to any future period can be subdivided into product differentiation, cost leadership, and growth components.
Which of the following is not true about the cause-and-effect criterion when estimating a cost function?
Correlation of variables proves cause-and-effect
Which of the following statements is true of choosing cost drivers under activity-based costing?
Cost drivers are independent variables
Place the following steps from the fiveminus step decision process in order: A = Obtain information including historical costs B = Evaluate performance to provide feedback C = Make decisions choosing among alternatives D = Make predictions about the future E = Identify the problem and uncertainties
E A D C B
________ are the subdivisions of income that management accountants use for the strategic analysis of operating income.
Growth, price-recovery and productivity components
Which of the following statements best relates to the balanced scorecard's learning and growth perspective?
How will we empower our employees?
Why is choosing the correct cost driver to estimate indirect manufacturing costs important?
Identifying the wrong driver can lead management to incorrect and costly decisions
A company's balanced scorecard measures yield, order-delivery time, cycle time, and errors as part of which of the following perspectives?
Internal-business-process
Which of the following is a measure of the balanced scorecard's customer perspective?
Number of client complaints
Which of the following statements is true of a linear cost function?
It presents variable cost as a slope coefficient
A company has three products possible products that it can produce in a machine intensive production process. capacity is constrained by the number of hours the machines can run during a period and the products are so popular that all units produced will be sold. Here is additional information: Product A Product B Product C Contribution per unit $20 (A) $30 (B) $40 (C) Machine hours per unit 2.5 (A) 3.25 (B) 4.5 (C) Which of the following would be an accurate conclusion based on these facts?
Product B should be emphasized if the goal is to maximize contribution margin.
Which of the following statements shows a difference between simple regressions and multiple regression
Simple regression uses only one dependent and one independent variable, whereas multiple regression uses one dependent and more than one independent variable.
Relevant data in a make-or-buy decision of a part include which of the following?
Some portion of fixed costs that would be saved if the product is outsourced
Which of the following is not true with regards to relevant costs and relevant revenues?
They are sunk costs and historical revenues
Which of the following is a step to overcome problems related to data collection for estimating cost function?
The analyst should remove the inflationary effects
Which of the following statements is true of a balanced scorecard?
The balanced scorecard reduces managers' emphasis on short-run financial performance.
Which of the following statements is of true engineered costs?
They have a detailed, physically observable, and repetitive relationship with output.
Which of the following statements is true of discretionary costs?
They have high level of uncertainty.
Which of the following is true in a decision to keep or replace existing equipment?
The disposal value of the old equipment is relevant
Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice. Which of the following statements is correct about relevant costs and relevant revenues.
The only relevant item are the costs as they differ between alternatives
Which of the following statements is a possible pitfall while implementing a balanced scorecard?
Top management ignoring nonfinancial measures when evaluating employee performance.
Which of the following best describes a step variable-cost function?
a step cost function in which cost remains the same over narrow ranges of the level of activity in each relevant range
Crimson Services, Inc., employs 8 individuals. They are all paid $16.50 per hour. How would total costs of personnel be classified?
Variable cost
Successful implementation of a product differentiation strategy will result in
a large favorable growth and price-recovery components
Which of the following is not a nonlinear cost function?
a step cost function
Assuming previous year's production capacity was adequate to produce current year output, the cost effect of growth for fixed costs is calculated by multiplying the difference between ________ by price per unit of capacity in the previous year.
actual units of capacity in previous year and actual units of capacity in previous year
The revenue effect of price recovery is calculated by multiplying the difference in selling price (current year minus the previous year) by ________.
actual units sold in the current year
Which of the following is NOT an engineered cost?
advertising costs for a new product that the factory will start producing
When evaluating a make-or-buy decision, which of the following needs to be considered?
alternative uses of the production capacity
Engineered costs
are from physically observable activities and have a repetitive relationship with output
The conference method estimates cost functions
based on analysis and opinions gathered from various departments
Which of the following minimizes the risks of outsourcing?
building close partnerships with the supplier
The account analysis method estimates cost functions
by classifying cost accounts as variable, fixed, or mixed based on qualitative analysis
A plot of cost driver and cost data may show all but the following
cause-and-effect relationship
When analyzing the change in operating income, the strategy component of price-recovery
compares the change in output price with the changes in input prices
When using the high-low method, the two observations used are the high and low observations of the
cost driver
What is the term for an organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control?
cost leadership
The cost to be predicted and managed is referred to as the
dependent variable
What is a plausible explanation of a cost function that has a slope coefficient of $30 for purchases of 1 to 1,000 units and $25 for production of 1,100 - 2,000 units, and $20 for production of 2,001 - 3,000 units.
economies of scale allowing for lower cost purchases with larger orders
The gross margin percentage is an example of the ________ measure of a balanced-scorecard.
financial perspective
Which of the following costs is irrelevant in the decision making of a special order when there is idle production capacity - enough excess capacity to accept the order?
fixed manufacturing costs
Which of the following is a relevant cost to be included in a make-or-buy decision?
fixed salaries that will not be incurred if the part is outsourced
When deciding whether to discontinue a segment of a business, relevant costs include
future administrative costs that can be eliminated
In general, profit potential of an organization decreases with
greater competition and stronger potential entrants
Which of the following are potential problems managers face in relevant-cost analysis?
incorrect assumptions such as all variable costs are relevant and all fixed costs are not
When there is an excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price if
incremental revenues exceed incremental costs
Conversion costs are an example of
indirect engineered costs
Which of the following focuses on these five factors: competitors, potential entrants to the market, equivalent products, bargaining power of customers, and bargaining power of suppliers?
industry analysis
When analyzing the change in operating income, the strategy component of growth
isolates the change attributed solely to an increase in the quantity of units sold
Successful implementation of a cost leadership strategy will result in
large favorable productivity and growth components
Which of following is a firm's risk of outsourcing the production of a part?
leakage of intellectual property
The employee turnover rates is an example of the ________ measure of a balanced-scorecard.
learning and growth perspective
An experience curve
measures the decline in cost per unit as production decreases for various value-chain functions such as marketing as production increases
The ideal database for estimating cost functions contains
numerous cost driver observations
If a company does not use one of its limited resources in the best possible way, the lost contribution to income could be called a(n)
opportunity cost
Which of the following would be considered in a make-or-buy decision?
potential rental income from space occupied by the production area
The cost effect of productivity for variable costs is calculated by multiplying the difference in actual input units used to produce current year output and units of input required to produce current year output in previous year by the
price per input unit of current year
The slope of the line of regression is the
rate at which the dependent variable varies
The fundamental rethinking and redesign of business processes to achieve improvements in critical measures of performance, such as cost, quality, service, speed, and customer satisfaction is
reengineering
When analyzing the change in operating income, the strategy component of price-recovery will increase when
selling prices are increased
Each of the following are true of relevant information except:
significant past investment amounts are relevant to decision making
Which of the following is not true about one-time-only special orders?
special orders would be accepted if they result in an increase in the contribution margin regardless of capacity and long-term implications
A cost driver should be measurable and have an economically plausible relationship with the dependent variable which means:
that the relationship is based on a cause-and-effect criterion and makes economic sense to management
Which cost estimation method would involve analyzing direct labor subsidiary accounts and classifying costs as as variable, fixed, or mixed to derive cost estimation formulas?
the account analysis method
Which of the following is not correct about the balanced scorecard?
the balance scorecard increases management's emphasis on short-term results
With a step fixed-cost function
the cost remains the same over wide ranges of the activity in each relevant range
Which of the following is NOT a discretionary cost?
the cost to train factory general managers to use a new activity based management system
Which of the following is a learning-curve model
the cumulative average-time learning model and the incremental unit-time learning model
Based on the theory of constraints, investments equal
the sum of material costs in direct materials, work-in-process, and finished goods inventories; R&D costs; and capital costs of equipment and buildings
If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the
total variable cost of producing the product
In a strategy map, a strategic objective where many ties spur out from it resulting in the achievement of many strategic objectives is called:
trigger point
As a result of learning curve,
unit costs decrease as productivity increases and the unit-cost function behaves nonlinearly
Managers can reduce capacity-based fixed costs by measuring and managing
unused capacity
An organization that is using the product differentiation approach would most likely do which of the following?
use innovative research and development and develop effective promotional campaigns to increase customer loyalty and charge higher prices
Quantitative analysis methods estimate cost functions
using a formal mathematical method to fit cost functions to past data observations
When analyzing the change in operating income, the strategy component of productivity
will report a large positive amount when a company has successfully pursued the cost leadership strategy
Which of the following functions represents the least total cost assuming the number of units is equal in each case?
y = 120 +4x