Cost ACCT 1
Bargain Company's contribution margin ratio is 22%. If the degree of operating leverage is 11 at the $180,000 sales level, operating profit at the $180,000 sales level must equal:
$3600
Given: Sales=$9000 Fixed Expenses=$2400 Variable Expenses=$2150 What would expected operating profit be if the company experienced a 10% increase in fixed costs and a 10% increase in sales volume?
$4895
Cost-volume-profit (CVP) analysis is a simple but powerful tool to assist management in making operating decisions. Which of the following does not represent a potential use of CVP analysis?
Aids in evaluating tax planning alternatives.
Which of the following statements regarding special orders is (are) true? (A) The primary decision for special orders is determining whether the differential revenue is greater than the differential costs associated with the order. (B) The differential analysis approach to pricing for special orders could lead to underpricing in the long-run because fixed costs are not included in the analysis.
Both A and B are true
Which of the following statements about the theory of constraints is (are) true? (A) The theory of constraints focuses on determining the optimal product mix when one or more resources restrict the attainment of a goal or objective. (B) The theory of constraints focuses on the rate of throughput contribution and minimizing investment and other operating costs.
Both of these are true
Which of the following statements regarding differential costs is (are) true? (A) The full-cost fallacy occurs when a decision-maker includes fixed manufacturing overhead in the product's cost. (B) When deciding whether or not to accept a special order, a decision-maker should focus on differential costs instead of full costs.
Both of these are true
If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease, what will be the effect on the contribution margin ratio and the break-even point, respectively?
CM ration: Increase Break-even point: Decrease
If both the variable cost per unit and the selling price per unit decrease, the new contribution margin ratio in relation to the old contribution margin ratio will be:
Cannot determine with the information given.
Which of the following statements is false?
Financial accounting information is important because it is sufficient to provide all the information for operational decisions commonly made by managers.
Which of the following statements is (are) true? (1) An asset is a cost that will be matched with revenues in a future accounting period. (2) Opportunity costs are recorded as intangible assets in the current accounting period.
Only 1 is true
Which of the following statements regarding differential costs is (are) false? (A) The full-cost fallacy occurs when a decision-maker fails to include fixed manufacturing overhead in the product's cost. (B) When deciding whether or not to accept a special order, a decision-maker should focus on differential costs instead of full costs.
Only A
Which of the following best distinguishes an opportunity cost from an outlay cost?
Opportunity costs are sacrifices from foregone alternative uses of resources, whereas outlay costs are cash outflows.
Managers do not make decisions about future events based on:
Perfect information.
In a decision analysis situation, which one of the following costs is not likely to contain a variable cost component? (CMA adapted)
Straight-line Depreciation
Break-even analysis assumes that over the relevant range: (CPA adapted)
Unit Variable Costs are unchanged
A cost driver is defined as: (CMA adapted)
a causal factor that increases the total cost of a cost objective.
A method that calls for a review of each account making up the total cost is which of the following cost estimation methods?
account analysis
Which of the following cost estimation methods relies heavily on personal judgment?
account analysis method
In the cost equation TC = F + VX, "X" is best described as the:
activity level used to estimate the total cost
A(n) ___________________ is any end to which a cost is assigned.
cost object
The beginning Finished Goods Inventory plus the cost of goods manufactured equals
cost of goods available for sale for the period.
The term "gross margin" for a manufacturing firm refers to the excess of sales over:
cost of goods sold, including fixed indirect manufacturing costs.
Prime cost consists of direct materials combined with:
direct labor
Which of the following costs is both a prime cost and a conversion cost?
direct labor
According to the Institute of Management Accountants (IMA), the first step in resolving an ethical dilemma is to:
discuss the situation with an immediate supervisor, except when it appears that the supervisor is involved, or with the next level supervisor if involvement of the immediate supervisor is suspected.
Which part of the value chain is outside the firm?
distribution chain
A manager is trying to estimate the manufacturing costs of a new product. The company makes several other products that utilize some of the same manufacturing procedures as the new product. Which cost estimation method would be the best method to determine the total cost of manufacturing the new product?
engineering estimates
Which of the following is not a key financial manager in an organization?
external auditor
The field of accounting that reports according to generally accepted accounting principles (GAAP) is called:
financial accounting
Operating leverage refers to the extent to which an organization's cost structure is made up of:
fixed costs
A decrease in the margin of safety would be caused by a(n):
increase in the total fixed costs
Obtaining regression estimates for cost estimation requires establishing the existence of a logical relation between activities and the cost to be estimated. Which of the following is not used to refer to the cost to be estimated?
independent variable
The cost accounting system that minimizes wasteful or unnecessary transaction processes is:
lean accounting.
Given actual amounts of a semi-variable cost for various levels of output, the method that will always give the most reliable measure of the fixed and variable components is the:
linear regression method
The three basic elements of manufacturing cost are direct materials, direct labor, and:
manufacturing overhead
Which of the following may be used to estimate how inventory warehouse costs are affected by both the number of shipments and the weight of the material handled? (CPA adapted)
multiple regression analysis
The practice of setting the selling price below cost with the intent to drive competitors out of business is:
predatory pricing
Agreement among business competitors to set prices at a particular level is:
price fixing
The time from initial research and development to the time that support to the customer ends is the:
product life cycle
The cost of direct labor will be treated as an expense on the income statement when the resulting:
products are sold
The just-in-time (JIT) method of production focuses on:
reducing inventories
The theory of constraints focuses on minimizing all of the following except:
selling expenses per unit sold
Break-even analysis assumes that:
the average variable cost per unit is constant.
The difference between total sales in dollars and total variable costs is called:
the contribution margin
Differential costs are: (CMA adapted)
the difference in total costs that result from selecting one choice instead of another.
The correlation coefficient is:
the measure of variability of the actual observations from the predicting (forecasting) equation line.
A management method by which the organization seeks to excel on all dimensions of quality is called:
total quality management.
The beginning Work-in-Process Inventory plus the total of the manufacturing costs equals
total work-in-process during the period.
A disadvantage of the high-low method of cost analysis is that it:
uses only two data points, which may not be representative of normal conditions.
The set of activities that transforms raw resources into the goods and services end users purchase and consume is called the:
value chain
