Cost chapter 12

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An unfavorable market-share variance would MOST likely be caused by ​a.​a competitor providing better service. ​b.​a competitor having distribution problems. ​c.​the company offering products at a lower price. ​d.​the company experiencing quality-control problems that get negative media coverage.

A

​(Actual sales quantity in units - Static budget sales quantity in units) x Budgeted contribution margin per unit = ​a.​the sales-volume variance. ​b.​the sales-mix variance. ​c.​the sales-quantity variance. ​d.​the market-share variance.

A

A common finding in many studies is that a high percentage of operating income is ​a.​contributed by a small number of customers. ​b.​contributed to evenly by most customers. ​c.​the result of high discounting. ​d.​the result of cooperative efforts by many low-volume customers.

A

A shift towards a mix of products with a lower contribution-margin per unit will MOST likely result in ​a.​an unfavorable sales-mix variance. ​b.​an unfavorable sales-quantity variance. ​c.​a favorable sales-mix variance. ​d.​a favorable sales-quantity variance.

A

An unfavorable sales-mix variance would MOST likely be caused by ​a.​a new competitor providing better service in the high-margin product sector. ​b.​a competitor having distribution problems with high-margin products. ​c.​the company offering low-margin products at a higher price. ​d.​the company experiencing quality-control problems that get negative media coverage of low-margin products.

A

Corporate-sustaining costs ​a.​are common to all individual customers. ​b.​have a clear cause-and-effect relationship with several cost-allocation bases. ​c.​should be allocated for decisions regarding reducing customer costs. ​d.​apply to all of the above.

A

Costs incurred to handle each unit sold would MOST likely be classified as ​a.​a customer output unit-level cost. ​b.​a customer batch-level cost. ​c.​a customer-sustaining cost. ​d.​a corporate-sustaining cost.

A

Homogeneous cost pools lead to ​a.​more accurate costs of a given cost object. ​b.​more resources being assigned to that cost object. ​c.​the need for more cost drivers. ​d.​both (a) and (c).

A

Indirect costs ​a.​often comprise a large percentage of overall costs assigned to a cost object. ​b.​specifically exclude marketing costs. ​c.​cannot be used for external reporting. ​d.​are treated as period costs and not as product costs.

A

More insight into the sales-volume variance can be gained by subdividing it into ​a.​the sales-mix variance and the sales-quantity variance. ​b.​the market-share variance and the market-size variance. ​c.​the flexible-budget variance and the market-size variance. ​d.​a cost hierarchy.

A

R&D costs are used for which purpose of cost allocation? ​a.​To provide information for economic decisions ​b.​To report to external parties when using generally accepted accounting principles ​c.​To calculate costs of a government contract ​d.​All of the above purposes

A

The MOST likely reason for NOT allocating corporate costs to divisions include that ​a.​these costs are not controllable by division managers. ​b.​these costs are incurred to support division activities, not corporate activities. ​c.​division resources are already used to attain corporate goals. ​d.​divisions receive no benefits from corporate costs.

A

The market-share variance results from a difference between the ​a.​actual market share and the budgeted market share. ​b.​actual contribution margin and the budgeted contribution margin. ​c.​budgeted contribution margin per composite unit for the actual mix and the budgeted contribution margin per composite unit for the budgeted mix. ​d.​actual market size in units and the budgeted market size in units.

A

The sales-mix variance will be unfavorable when ​a.​the actual sales mix shifts toward the less profitable units. ​b.​the composite unit for the actual mix is greater than for the budgeted mix. ​c.​actual unit sales are less than budgeted unit sales. ​d.​the actual contribution margin is greater than the static-budget contribution margin.

A

To guide cost allocation decisions, the fairness or equity criterion ​a.​is the criterion often cited in government contracts. ​b.​is superior when the purpose of cost allocation is for economic decisions. ​c.​is used more frequently than the other criteria. ​d.​is the primary criterion used in activity-based costing.

A

Which purpose of cost allocation is used to decide on the selling price for a customized product or service? ​a.​To provide information for economic decisions ​b.​To motivate managers and other employees ​c.​To justify costs or compute reimbursement ​d.​To measure income and assets for reporting to external parties

A

Costs incurred to process orders would MOST likely be classified as ​a.​a customer output unit-level cost. ​b.​a customer batch-level cost. ​c.​a customer-sustaining cost. ​d.​a corporate-sustaining cost.

B

The static-budget variance will be favorable when ​a.​actual unit sales are less than budgeted unit sales. ​b.​the actual contribution margin is greater than the static-budget contribution margin. ​c.​the actual sales mix shifts toward the less profitable units. ​d.​the composite unit for the actual mix is greater than for the budgeted mix.

B

To allocate corporate costs to divisions, the allocation base used should ​a.​be an output unit-level base. ​b.​have the best cause-and-effect relationship with the costs. ​c.​combine administrative costs and human resource management costs. ​d.​allocate the full costs.

B

Which purpose of cost allocation is used to encourage sales representatives to push high-margin products or services? ​a.​To provide information for economic decisions ​b.​To motivate managers and other employees ​c.​To justify costs or compute reimbursement ​d.​To measure income and assets for reporting to external parties

B

A challenge to using cost-benefit criteria for allocating costs is that ​a.​the costs of designing and implementing complex cost allocations are not readily apparent. ​b.​the benefits of making better-informed pricing decisions are difficult to measure. ​c.​cost systems are being simplified and fewer multiple cost-allocation bases are being used. ​d.​the costs of collecting and processing information keep spiraling upward.

B

A favorable market-size variance would MOST likely be caused by ​a.​the company reducing the services provided to customers. ​b.​an increase in overall market size. ​c.​a new competitor moving into the area. ​d.​a competitor providing better prices.

B

A favorable sales-quantity variance would MOST likely be caused by ​a.​a new competitor providing better service in the high-margin product sector. ​b.​a competitor having distribution problems with high-margin products. ​c.​the company offering low-margin products at a higher price. ​d.​the company experiencing quality-control problems that get negative media coverage of low-margin products.

B

An advantage of using a bar chart to visualize customer profitability is that ​a.​differences in commissions paid to sales persons stand out. ​b.​loss customers stand out. ​c.​trends in the volume of purchases become apparent. ​d.​all of the above are advantages.

B

Any item for which a separate measurement of cost is desired is known as ​a.​cost allocation. ​b.​a cost object. ​c.​a direct cost. ​d.​an indirect cost.

B

Corporate administrative costs allocated to a division cost pool are MOST likely ​a.​output unit-level costs. ​b.​facility-sustaining costs. ​c.​product-sustaining costs. ​d.​batch-level costs.

B

Customers making large contributions to the profitability of the company should ​a.​be treated the same as other customers since all customers are important. ​b.​receive a higher level of attention from the company than less profitable customers. ​c.​be charged higher prices for the same products than less profitable customers. ​d.​not be offered the volume-based price discounts offered to less profitable customers.

B

Dropping an unprofitable customer will ​a.​eliminate long-run costs assigned to that customer. ​b.​eliminate most short-run costs assigned to that customer. ​c.​decrease long-run profitability. ​d.​increase the potential to cross-sell other products that are more desirable.

B

If deciding whether to eliminate a distribution channel, allocating corporate-sustaining costs to distribution channels ​a.​helps define cost reduction possibilities. ​b.​gives the misleading impression of potential cost savings. ​c.​identifies administrative inefficiencies. ​d.​evaluates the effectiveness of sales personnel.

B

Loss-causing customers ​a.​should be eliminated. ​b.​should be evaluated for ways to become profitable customers. ​c.​should be retained because each customer adds to long-run profitability. ​d.​do not exist because additional customer sales always increase profits.

B

More insight into the sales-quantity variance can be gained by subdividing it into ​a.​the sales-mix variance and the sales-volume variance. ​b.​the market-share variance and the market-size variance. ​c.​the flexible-budget variance and the sales-volume variance. ​d.​a cost hierarchy.

B

The MOST likely reason for allocating all corporate costs to divisions include that ​a.​division managers make decisions that ultimately control corporate costs. ​b.​divisions receive benefits from all corporate costs. ​c.​the hierarchy of costs promotes cost management. ​d.​it is best to use multiple cost objects.

B

The budgeted contribution margin per composite unit for the budgeted mix can be computed by ​a.​dividing the total budgeted contribution margin by the actual total units. ​b.​dividing the total budgeted contribution margin by the total budgeted units. ​c.​dividing the actual total contribution margin by the total actual total units ​d.​dividing the actual total contribution margin by the total budgeted units.

B

The direct materials mix variance is the ​a.​average of the direct materials mix variances for each input. ​b.​sum of the direct materials mix variances for each input. ​c.​difference between the direct materials mix variances for each input. ​d.​multiple of the direct materials mix variances for each input.

B

The direct materials mix variance will be favorable when ​a.​the flexible-budget contribution margin is greater than the actual contribution margin. ​b.​the actual direct materials input mix is less expensive than the budgeted direct materials input mix. ​c.​the actual quantity of total inputs used is greater than the flexible budget for total inputs. ​d.​actual unit sales are less than budgeted unit sales.

B

The greater the degree of homogeneity, ​a.​the greater the number of needed cost pools. ​b.​the fewer the number of needed cost pools. ​c.​the less accurate the costs of a particular cost object. ​d.​the greater the variety of cause-and-effect relationships with the cost driver.

B

The market-share variance is MOST influenced by ​a.​economic downturns in the economy. ​b.​how well managers perform relative to their peers. ​c.​shifts in consumer preferences that are outside of the manager's control. ​d.​rates of inflation.

B

The market-share variance will be favorable when ​a.​the flexible-budget contribution margin is greater than the static-budget contribution margin. ​b.​the actual market share is greater than the budgeted market share. ​c.​actual market size in units is less than budgeted market size in units. ​d.​actual unit sales are less than budgeted unit sales.

B

The sales-quantity variance results from a difference between ​a.​the actual sales mix and the budgeted sales mix. ​b.​the actual quantity of units sold and the budgeted quantity of unit sales in the static budget. ​c.​actual contribution margin and the budgeted contribution margin. ​d.​actual market size in units and the budgeted market size in units.

B

The sales-quantity variance will be unfavorable when ​a.​the composite unit for the actual mix is greater than for the budgeted mix. ​b.​actual unit sales are less than budgeted unit sales. ​c.​the actual contribution margin is greater than the static-budget contribution margin. ​d.​the actual sales mix shifts toward the less profitable units.

B

To guide cost allocation decisions, the cause-and-effect criterion ​a.​is used less frequently than the other criteria. ​b.​is the primary criterion used in activity-based costing. ​c.​is a difficult criterion on which to obtain agreement. ​d.​may allocate corporate salaries to divisions based on profits.

B

When corporate-sustaining costs are fully allocated to distribution channels then the sum of the distribution-channel operating incomes ​a.​is less than company-wide operating income. ​b.​is equal to company-wide operating income. ​c.​is greater than company-wide operating income. ​d.​cannot be determined.

B

Corporate-sustaining costs should be allocated ​a.​to motivate changes in customer behavior. ​b.​to evaluate distribution-channel managers. ​c.​to determine the selling price that will cover all costs. ​d.​to identify the most profitable customers.

C

Costs which are not economically feasible to trace but are related to a cost object are known as ​ a.​fixed costs. ​b.​direct costs. ​c.​indirect costs. ​d.​variable costs.

C

More insight into the efficiency variance for direct materials can be gained by subdividing it into the direct materials ​a.​mix and volume variances. ​b.​market-share and market-size variances. ​c.​mix and yield variances. ​d.​price and efficiency variances.

C

More insight into the static-budget variance can be gained by subdividing it into ​a.​the sales-mix variance and the sales-quantity variance. ​b.​the market-share variance and the market-size variance. ​c.​the flexible-budget variance and the sales-volume variance. ​d.​a cost hierarchy.

C

Not allocating some corporate costs to divisions and products results in ​a.​an increase in overall corporate profitability. ​b.​the sum of individual product profitability being less than overall company profitability. ​c.​the sum of individual product profitability being greater than overall company profitability. ​d.​a decrease in overall corporate profitability.

C

Reliable information about market size and market share is available ​a.​for no industries. ​b.​for the management consulting and personal financial planning industries. ​c.​for the automobile and television industries. ​d.​for all industries.

C

Some companies only allocate corporate costs to divisions that ​a.​are planned and under the control of division managers. ​b.​are output unit-level costs. ​c.​are perceived as causally related to division activities. ​d.​are direct costs.

C

The cost of visiting customers would MOST likely be classified as ​a.​a customer output unit-level cost. ​b.​a customer batch-level cost. ​c.​a customer-sustaining cost. ​d.​a corporate-sustaining cost.

C

The market-size variance will be unfavorable when ​a.​the flexible-budget contribution margin is greater than the static-budget contribution margin. ​b.​the actual market share is greater than the budgeted market share. ​c.​actual market size in units is less than budgeted market size in units. ​d.​actual unit sales are less than budgeted unit sales.

C

The materials yield variance will be unfavorable when ​a.​the flexible-budget contribution margin is greater than the actual contribution margin. ​b.​the actual direct materials input mix is less expensive than the budgeted direct materials input mix. ​c.​the actual quantity of total inputs used is greater than the flexible budget for total inputs. ​d.​actual unit sales are less than budgeted unit sales.

C

The sales-mix variance results from a difference between the ​a.​actual market share and the budgeted market share. ​b.​actual contribution margin and the budgeted contribution margin. ​c.​budgeted contribution margin per composite unit for the actual mix and the budgeted contribution margin per composite unit for the budgeted mix. ​d.​actual market size in units and the budgeted market size in units.

C

To guide cost allocation decisions, the ability to bear criterion ​a.​is likely to be the most credible to operating personnel. ​b.​allocates costs in proportion to the benefits received. ​c.​results in subsidizing products that are not profitable. ​d.​is the criterion often cited in government contracts.

C

To reduce distribution-channel costs, a company could ​a.​improve the efficiency of the ordering process. ​b.​make fewer customer visits. ​c.​eliminate distribution to retailers and only service wholesalers. ​d.​do any of the above.

C

When individual activities within a cost pool have a similar relationship with the cost driver, those costs ​a.​need to be reallocated. ​b.​need multiple cost drivers. ​c.​are considered a homogeneous cost pool. ​d.​are considered an allocated cost pool.

C

Which cost-allocation criterion is MOST likely to subsidize poor performers at the expense of the best performers? ​a.​The fairness or equity criterion ​b.​The benefits-received criterion ​c.​The ability to bear criterion ​d.​The cause-and-effect criterion

C

_______________ categorizes costs related to customers into different cost pools on the basis of either different classes of cost drivers or different degrees of difficulty in determining the cause-and-effect (or benefits-received) relationships. ​a.​Customer-profitability analysis ​b.​Customer revenues ​c.​Customer cost hierarchy ​d.​Price discounting

C

Customer actions will LEAST affect ​a.​customer output unit-level costs. ​b.​customer batch-level costs. ​c.​customer-sustaining costs. ​d.​distribution-channel costs.

D

The sales-mix variance will be favorable when ​a.​the actual contribution margin is greater than the static-budget contribution margin. ​b.​actual unit sales are less than budgeted unit sales. ​c.​the actual sales mix shifts toward the less profitable units. ​d.​the composite unit for the actual mix is greater than for the budgeted mix.

D

Which cost-allocation criterion is appropriate when making an economic decision? ​a.​The fairness or equity criterion ​b.​The ability to bear criterion ​c.​The cause-and-effect criterion ​d.​Any of the above criteria are appropriate

D

A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of ​a.​different types of cost drivers. ​b.​different benefits-received relationships. ​c.​different levels of cause-and-effect relationships. ​d.​all of the above.

D

Corporate overhead costs can be allocated ​a.​using a single cost pool. ​b.​to divisions using one cost pool and then reallocating costs to products using multiple cost pools. ​c.​using numerous individual corporate cost pools. ​d.​using any of the above methods.

D

Customers are more valuable when they are all EXCEPT ​a.​well known in the community. ​b.​expected to continue to do business with a company. ​c.​in an industry with high-growth potential. ​d.​require special attention on a regular basis.

D

Identifying homogeneous cost pools ​a.​requires judgment and should be reevaluated on a regular basis. ​b.​should include the input of management. ​c.​should include a cost-benefit analysis. ​d.​should include all of the above.

D

More insight into the flexible-budget variance for direct materials can be gained by subdividing it into the direct materials ​a.​mix and volume variances. ​b.​market-share and market-size variances. ​c.​mix and yield variances. ​d.​price and efficiency variances.

D

Price discounts are influenced by ​a.​the volume of product purchased. ​b.​a desire to sell to a customer in an area with high-growth potential. ​c.​negotiating skills of the sales person. ​d.​all of the above.

D

The allocation of corporate-sustaining costs is useful for ​a.​evaluating the performance of salespersons with individual customer accounts. ​b.​motivating distribution-channel management. ​c.​focusing on the cause-and-effect relationships with the cost-allocation bases. ​d.​none of the above.

D

The costs of all six value-chain functions should be included when determining ​a.​whether to add a new product line. ​b.​the selling price of a service. ​c.​whether to make or buy a component part from another manufacturer. ​d.​all of the above.

D

The market-size variance results from a difference between the ​a.​actual market share and the budgeted market share. ​b.​actual contribution margin and the budgeted contribution margin. ​c.​budgeted contribution margin per composite unit for the actual mix and the budgeted contribution margin per composite unit for the budgeted mix. ​d.​actual market size in units and the budgeted market size in units.

D

To guide cost allocation decisions, the benefits-received criterion ​a.​generally uses the cost driver as the cost allocation base. ​b.​results in subsidizing products that are not profitable. ​c.​is the primarily criterion used in activity-based costing. ​d.​may use an allocation base of division revenues to allocate advertising costs.

D

To improve customer profitability, companies should ​a.​strictly enforce their volume-based price discounting policy. ​b.​track discounts by customer. ​c.​track discounts by sales person. ​d.​both (b) and (c).

D

To improve customer profitability, companies should track ​a.​only the final invoice price of a sale. ​b.​the volume of the products purchased by each customer. ​c.​discounts taken by each customer. ​d.​both (b) and (c).

D

To manage setup costs, a corporation might focus on ​a.​the number of setup-hours. ​b.​the number of units included in each production run. ​c.​the batch-level costs incurred per setup-hour. ​d.​both (a) and (c).

D

Top management and general administration costs would MOST likely be classified as ​a.​a customer output unit-level cost. ​b.​a customer batch-level cost. ​c.​a customer-sustaining cost. ​d.​a corporate-sustaining cost.

D


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