Cost Final Exam
The manager acting independently in such a way as to simultaneously achieve top management's objectives is exhibiting
Goal congruence
An organization subject to intense competitive pressures would most likely use
Ideal standards for its operations
A deviation from standard that occurs during operations because of operator errors is an example of a
Implementation error
A company currently earning a profit can increase its ROI by
Increasing sales revenues and operating expenses by the same percentage
An employment contract is an agreement between the manager and top management designed to provide incentives for the manager to act
Independently to achieve top management's objectives
Which one of the following is not an order-filling cost
Inspection
A standard cost system
Is most easily introduced in conjunction with a process-cost system
A statistical control chart
Is useful for identifying random versus systematic variances
As a strategic issue, "budget slack" could represent a
Lower overall level of expected performance than is achievable
The evaluation by upper-level managers of the performance of mid-level managers is
Management control
The common factor among control systems in hiring practices, promotion policies, and strategic performance measurement is
Management sets expectations for desired employee performance
Authoritative standards (within the context of a standard cost system) are determined primarily by:
Managers
Given a competitive outside market for identical intermediate goods, what is the BEST transfer price, assuming all relevant information is readily available?
Market price of the intermediate goods
For operational control, a management accounting system should include
Performance measures associated with basic business processes
Each of the following represents a way of calculating ROI for a division except
Return on sales x inventory turnover
What is an appropriate performance evaluation measure for the early stage of a product's life cycle
Revenue
The type of strategic business unit where the focus is on the selling function of a specific product line or by a geographical location is referred to as a
Revenue center
Risk plays a critical role in the decision making process. However, numerous studies have shown that it is common for executives, managers and individuals to be considered
Risk averse
The effect on sales, expenses, or operating income of changes in units sold is measured by the
Sales-volume variance
Managers who are risk averse
Seek to avoid options with high risk and would choose an option with lower expected value if it had less risk
The difference between the total actual sales revenue of a period and the total flexible-budget sales revenue for the units sold during the period is the
Selling price variance
A "standard cost" is a predetermined amount (e.g. cost) that
Should be incurred under relatively efficient operating conditions
SBU is the acronym for
Strategic business unit
The primary limitation of using EVA to evaluate the financial performance of investment centers is
Complexity of the calculation
In properly developing formal systems at the team level that will have the desired impact on employees' performance, the management accountant should recognize any existing informal systems and
Consider cultural aspects in development of the formal system
Random variances are
Considered as uncontrollable from the standpoint of management
For internal reporting purposes, it is recommended that fixed overhead allocation rates in a standard costing system be based on which of the following denominator volume choices
Practical capacity
An activity-based cost (ABC) driver applies factory overhead to products or services according to the
Resource demands/resource consumption of the firm's outputs (goods or services produced)
A measure of the manager's ability to control expenses and increase revenues to improve profitability is
Return on sales
Which of the following is different in a flexible budget compared to the master budget for a period?
Sales volume
Which one of the following standard cost variances is not available when analyzing batch-related manufacturing overhead costs using an ABC system
Sales volume variance
Companies use the balanced scorecard to describe strategy in detail through the use of a cause-and-effect diagram which is also known as a
Strategy Map
Because RI is a dollar amount, in contrast to a percentage, RI
Allows, through different discount rates, adjustment for differing levels of risk across investment centers within an organization
Finding a single cost driver that changes in the same proportion as variable factory overhead costs is
Difficult, if not impossible, because of the underlying nature of variable overhead cost components
For a direct material, which one of the following is defined as the difference between the actual and standard unit price of the direct material multiplied by the actual quantity of the material purchased
Direct materials purchase-price variance
Which one of the following, for each direct material used in production, is defined as the difference between the actual units of material used and the total standard units of the direct material that should have been used for the units of the product manufactured during the period, multiplied by the standard unit price of the direct material
Direct materials usage variance
Factors contributing to the fixed factory overhead spending variance can include all the following except
Operating inefficiency
Controllable margin is determined by subtracting short-term controllable fixed costs from the
Contribution margin
The least common type of SBU in a retail firm is the
Cost center
In a not-for-profit organization, you are more likely to see
Cost centers
Production or support SBUs within the firm that have the goal of providing the best quality product or service at the lowest cost are
Cost centers
The replacing of controllable costs with non-controllable costs by a department is
Cost shifting
For which one of the following reasons is the calculation of overhead variances in conjunction with an ABC system desirable from the standpoint of management
Such a system would be consistent with the goal of managing activities rather than cost
The total operating income variance for a period reveals whether a company has achieved
The master budgeted operating income for the period
The difference between total factory overhead cost incurred during a period and the total standard factory overhead cost assigned to production of the period is the
Total factory overhead variance
The difference between the total actual overhead cost incurred during a period and budgeted total factory overhead cost for the actual quantity of the cost driver used to apply overhead is equal to the
Total overhead spending variance
Under the principal-agent model of contract relationships, situations such as machine breakdowns or a decrease in market demand would be classified under
Uncertainty
Which of the following is not a principle of employment contracts
Uncertainty affects future wages
The principal-agent economic model applied to employment contracts includes two of the following management performance aspects
Uncertainty and lack of observability
Which one of the following characteristics is associated with standard cost variance analysis for manufacturing overhead under a traditional versus an ABC system
Under both cost systems a flexible budget is used for control purposes
Use of NBV in valuing investment in operating plant assets for investment centers, in contrast to using an estimate of current value, will
Usually overstate ROI
Among the benefits of centralized management in a firm is
Utilization of expertise of top management
The main concept of the balanced scorecard is that, to evaluate the SBU's progress to strategic success, an organization must use all of the following except
Value chain analysis
The difference between the standard variable overhead cost for the actual quantity of the cost driver used for applying variable overhead and the standard variable overhead cost allowed for the units manufactured during a given period is the
Variable overhead efficiency variance
Which one of the following reflects both price (rate) as well as efficiency (quantity) effects regarding individual variable overhead items?
Variable overhead spending variance
Bradbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each restaurant was treated as a profit center for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included materials, supplies, labor, and depreciation and maintenance on the equipment. Bradbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs. In April, the costs were $30,000, of which $16,000 were fixed. The Pork Palace served 4,400 tables, while the Chicken Hut served 3,600 tables. The amount of joint cost that should have been allocated to the Pork Palace in April is calculated to be:
$15,700
A manufacturer planned to use $82.00 of materials per unit produced, but in the most recent period it actually used $80.00 of material per unit produced. During this same period, the company planned to produce 1,200 units, but actually produced 1,00 units. The flexible-budget variance for materials, to the nearest dollar is
$2,000 favorable
Ally Mfg. uses a standard cost system and its July production of 1,800 units involved actual DL costs of $242,000 for 5,500 hours worked (AQ). The budget for July called for production of 2,000 units with 6,000 DL hours at $40.00 per hour (SP). Ally's DL rate variance for July, to the nearest dollar, was
$22,000 unfavorable
Gerhan Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead. What is the variable factory overhead spending variance (to the nearest whole dollar) in May, assuming Gerhan uses a four-variance breakdown (decomposition) of the total overhead variance?
$300 favorable
Bradbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each restaurant was treated as a profit center for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included materials, supplies, labor, and depreciation and maintenance on the equipment. Bradbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs. In April, the costs were $30,000, of which $16,000 were fixed. The Pork Palace served 4,400 tables, while the Chicken Hut served 3,600 tables. The amount of the joint cost that should have been allocated to the Chicken Hut in April is calculated to be:
$14,300
Joe Malay received the following report on the Division's operation for the month of August: DL rate variance = $25,000 unfavorable; DL efficiency variance = $70,000 (?). The standard calls for 3 DL hours per unit of output at $28.00 per labor hour (SP). The standard DL hours allowed for the units manufactured (SQ) is 20% more than the total DL hours worked (AQ) in August. What was the average DL hourly rate (AP) the Division paid in August, to two decimal places
$30.00
The fixed factory overhead production-volume variance represents
A result of unitizing fixed overhead costs for product-costing purposes
The balanced scorecard measures the SBU's performance in all of the following areas except
Accounting and tax compliance
The six steps Ittner and Larcker propose for maximizing the value of nonfinancial measures when using a balanced scorecard include all the following except
Base actions on the data
Operational control systems can be distinguished from financial control systems
Because they focus on the control of basic business processes
The use of replacement cost of assets for purposes of calculating ROI has the advantage of
Being a relevant measure of the level of investment in a continuing business
Which of the following is not a step to maximize the value of nonfinancial measures, as suggested by Ittner and Larcker
Benchmark with similar firms
The fixed factory overhead application rate (for product-costing purposes) is equal to
Budgeted fixed factory overhead divided by denominator activity
The "flexible budget" can best be described as a budget that adjusts
Budgeted revenues and expenses for changes in output (such as sales volume)
One advantage of the ROI metric is that it
Can be compared to interest rates and to rates of return on alternative investments
A primary characteristic of a negotiated transfer price is that it
Can be costly and time-consuming to implement
The total operating-income variance for any period
Can be decomposed into a total flexible-budget variance and a sales-volume variance
Which one of the following establishes an "arm's-length price" by using the sales prices of similar products made by unrelated firms
Comparable-price method
Since RI is not a percentage, it is not very useful for
Comparing business units of significantly different sizes
If standard cost variances are allocated (i.e. prorated) to inventory and COGS accounts at the end of a period, which of the following is correct
Conceptually, the amount allocated to each account is based on the relative amount of the current period's standard cost in the end-of-period balance in each account
ROI can be directly increased by
Decreasing operating assets
RI may be a better measure for performance evaluation of an investment center than ROI because
Desirable investment decisions will not be discouraged by high-rate-of-return divisions
For production and support departments, a method of implementing cost centers that is input-oriented is the
Discretionary-cost method
The cost method that is input-oriented and considers costs largely uncontrollable at the planning stage is called the
Discretionary-cost method
A division's after-tax cash operating income less depreciation and less an imputed cost of capital is called its
Economic value added
Which one of the following is a drawback of decentralization
May hinder coordination among independent SBUs
In a formal management control system, top management sets expectations for desired manager performance. Which of the following is not one of the areas in which a formal individual management control system would be used
Organizational culture
Which of the following is not a revenue driver factor which affects sales volume for a manufacturing firm
Productivity
Under the notion of controllability, it is most appropriate for top management to evaluate the profitability of an investment center in terms of
Profits generated in relation to the amount of capital invested in the unit
Order-filling costs
Usually have a relatively clear relationship to sales volume
Gerhan Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead. hat is the factory overhead What is the factory overhead variance (to the nearest whole dollar) for May under the assumption that Gerhan uses a four-variance breakdown (decomposition) of the total overhead variance
$480 unfavorable
Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2.0 hrs. @ $5.00/hr.) = $10.00; overhead (2.0 hrs. @ $2.50/hr.) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $225,000, total fixed overhead of $123,000, 85,000 hours worked, and 40,000 units produced. The variable factory overhead efficiency variance for Megan, Inc. for the past month, to the nearest whole dollar, was
$5,000 unfavorable
Zero Company's standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. What was the fixed factory overhead spending variance (to the nearest whole dollar) for Zero Company in December
$50 favorable
Zero Company's standard factory overhead application rate is $3.75 per DL hour, calculated at 90% capacity = 900 standard DL hours. In December, the company operated at 80% of capacity, or 800 standard DL hours. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost incurred was $3,800 for 840 actual DL hours, of which $1,300 was for fixed factory overhead. If Zero Company uses a two-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead flexible-budget variance for December (to the nearest whole dollar)
$650 unfavorable
Gerhan Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead. What is the fixed factory overhead spending variance (to the nearest whole dollar) in May for Gerhan Company
$680 unfavorable
At the denominator activity level, Norland Company's total overhead budget for 25,000 units of production shows variable overhead costs of $36,000 and fixed overhead costs of $32,000. During the most recent period, the company incurred total overhead costs of $61,400 to manufacture 20,000 units. The total factory overhead variance for Norland Co. for the most recent period, to the nearest whole dollar, was
$7,000 unfavorable
Gerhan Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3 per DLH, based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead. What is the total factory flexible-budget variance (to the nearest whole dollar) for Gerhan Company in May
$860 unfavorable
Precilla Company uses a standard costing system that allows 2.0 pounds of DM for one finished unit of product. During July, the company purchased 40,000 lbs of DM for $210,000, and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Precilla has an unfavorable DM usage variance of $5,000. Also, the company records any price variance for materials at time of purchase. The actual number of lbs (AQ) of DM used to produce July's output, to the nearest whole number, was
25,000 lbs
Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,000 unfavorable; Direct labor efficiency variance = $70,000 (?). The standard calls for 3.0 direct labor hours per unit of output at $28.00 per labor hour (SP). The standard direct labor hours allowed for the units manufactured (SQ) is 20 percent more than the total direct labor hours worked (AQ) in August. How many units (rounded to nearest whole number) of the product were produced in August?
5,000
Megan, Inc. uses the following standard costs per unit for one of its products: DL (2 hrs @ $5 per hr) = $10; overhead (2 hrs @ $2.50/hr) = $5.00. The flexible budget for overhead is $120,000 plus $1 per DLH. Actual data for the past month show total overhead costs of $225,000, total fixed overhead of $123,000, 85,000 hrs worked, and 40,000 units produced. What is the budgeted denominator activity level for Megan Inc. in DLH to the nearest whole number
80,000
In a standard cost system, when production (i.e. actual output) is greater than the denominator volume level, there will be
A favorable production-volume variance
The use of gross book value for measuring the level of investment in depreciable assets (for purposes of calculating ROI) is preferred by those who value the objectivity of
A historical cost number
A favorable price variance for direct materials indicates that
A lower price than expected was paid for the materials
Operational control has a management-by-exception approach in contrast to management control, which is more consistent with
A management-by-objectives approach
In contrast to RI, economic value added uses in its calculation
A measure of economic, not accounting, income
ROI encourages business units to invest only in projects that earn
A rate of return higher than the unit's current ROI
A deviation from standard that occurs because of an incorrect number resulting from improper or inaccurate accounting systems or procedures is an example of an
Accounting error
Strategic performance measurement is a
Accounting system used by top management for the evaluation of SBU managers
The difference between the historical cost and the net book value of a plant asset is the
Accumulated depreciation expense on the asset
Controllable fixed costs
Are those costs that the profit center manager can influence in approximately a year or less
A measure of the manager's ability to produce increased sales from a given level of investment is
Asset Turnover
A segment of an organization is referred to as an investment center if it has
Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital
The "risk-averse" manager will be improperly biased to
Avoid decisions with uncertain outcomes
Which of the following specifications for calculating EVA is correct
EVA® = NOPAT − Imputed charge on EVA® capital, where NOPAT = net operating profit after (cash) taxes.
The production-volume variance should generally not be calculated and reported for control purposes because, unless interpreted properly, it can
Encourage overproduction by managers to achieve a favorable volume variance
For production and support departments, a method of implementing cost centers that is output-oriented is the
Engineered-cost method
If a manager's evaluation is performed before the manager's efforts and decisions have been made, then they evaluation is performed
Ex ante
Which of the following is not an important formal management control system at the individual employee level
Expense reimbursement policy
Which of the following is not a plausible cause of a direct labor efficiency variance?
Failure to update the standard cost to conform to wage provisions in the union contract
The balanced scorecard is particularly important is difficult economic times because
Financial measures may be distorted
Put simply, transfer pricing is a management tool for assigning a "price" to internally transferred goods (or services) in order to simulate the marketplace, thus encouraging managers to make decisions that are in the best interest of the
Firm as a whole
Which of the following is not a characteristic of the discretionary-cost approach
Firms use an output-oriented evaluation focus
All of the following are possible transfer pricing methods used in practice except
Fixed cost
Manufacturing companies using a standard cost system often can achieve more effective control when factory overhead variance analysis is done with
Multiple cost drivers
The conventional return on investment performance measure calculates "profit" and "investment" based on
GAAP
The benefits of decentralized management in a firm include all of the following except
Improved coordination among divisional managers
A comprehensive management accounting and control system regarding manufacturing overhead costs
Includes both financial performance indicators as well as nonfinancial performance indicators
From a strategic standpoint, profit centers tend to
Provide incentive for coordination among managers of different functional units
A fully-owned subsidiary of a multinational company reports its ROI periodically during the year. This unit of the company for performance evaluation purposes, is likely considered a
Investment center
SBUs that include the assets they employ as well as profits in the performance evaluation are
Investment centers
An organization's overall management accounting and control system
Is also referred as the organization's core performance-measurement system
Which of the following statements about processing cycle efficiency (PCE) is not true?
It is defined as the ratio of processing time to non-processing time
The arrival of new manufacturing techniques such as automation, flexible manufacturing systems, and cluster or cell manufacturing has:
Led to a deemphasis of the importance of direct labor cost variances
The estimated price that could be received for the sale of divisional assets is referred to as
Liquidation value
Replacement cost of a division's assets will most probably be greater than
Liquidation value of assets
Performance evaluation in most firms is applied at
Many different levels from top management down to individual production and sales employees
Transfer prices based on actual costs of the selling division as opposed to standard costs incurred by that division
May fail to provide the selling division with an incentive to control costs
A favorable cost variance of significant magnitude
May lead to future improvements in production
Which of the following is an advantage of decentralization
Motivates managers
The most important objective of a strategic performance measurement system is
Motivation
The objectives of management control of the manager include
Motivation, incentive and fairness
Gerhan Company's flexible budget for the units manufactured in May shows $15,640 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead. What is the factory overhead efficiency variance (to the nearest whole dollar) for Gerhan Company in May, under the assumption that the company uses a two-variance breakdown (decomposition) of the total overhead variance?
N/A
Zero Company's standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. Assuming a four-variance breakdown (decomposition) of the total overhead variance, what is the fixed factory overhead efficiency variance (to the nearest whole dollar) for the period
N/A
Zero Company's standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. Assuming the use of a two-way breakdown (decomposition) of the total overhead variance, what is the factory overhead efficiency variance for Zero Company in December (to the nearest whole dollar)
N/A
The historical cost of an asset less its accumulated depreciation is
Net book value
Costs such as depreciation, taxes and insurance usually extending beyond one year are considered
Noncontrollable fixed costs
Use of the market-price method satisfies a key objective of transfer pricing, namely
Objectivity
EVA
Of $100,000 for an investment center indicates that the investment center's economic profit for the period was $100,000
Profit center income statements are most meaningful to managers when they are prepared
On a variable cost basis
The basic objective of the RI approach to performance measurement of a business unit considered an investment center is to have the investment center maximizes its
Operating income in excess of a desired minimum dollar return
The basic objective of the RI approach to divisional performance measurement and evaluation is to have a division maximize its
Operating income in excess of an imputed charge for capital invested in the division
RI is
Operating income of an investment center, less the imputed interest on the capital used by the center
The evaluation of operating level employees by mid-level managers is
Operational control
Expenditures made in revenue centers usually include
Order-getting costs
Quick Technology Company is a supplier of high-end research equipment for the pharmaceutical industry. Quick currently has a variety of different firms producing computer chips for increased memory and improved processing speeds which are installed in Quick's equipment. In this case, having another firm provide supplies for Quick's equipment is an example of:
Outsourcing
The difference between actual overhead costs incurred during a period and the overhead in the flexible budget based on the output for the period is called the
Overhead flexible-budget variance
The process by which managers at all levels in the firm gain information about the performance of tasks within the firm and judge that performance against pre-established criteria is
Performance measurement
A model that has been used to better understand the key elements that contracts must have in order to achieve the desired objectives is
Principal-agent model
SBUs that generate revenues and incur the major portion of the cost for producing those revenues are:
Profit centers
Under the notion of controllability, it is appropriate to evaluate the profitability of each investment center based on each center's
Profit earned in relation to the amount of capital invested in the subunit
The need for coordination between the production and the selling function will impact the choice of
Profit, cost, or revenue center
What is an appropriate performance evaluation measure for the mature stage of a product's life cycle
Profitability
Which of the following is not a criterion for choosing the cost allocation method
Profitability focus
Which of the following is not an objective when choosing a cost allocation method
Provide an opportunity for managers to make decisions consistent with the manager's goals
The difference between actual and standard cost caused by the difference between the actual number of resources-units used and the standard number of resource-units that should have been used for the output of the period is called the
Quantity (or efficiency or usage) variance
Which of the following is not a criticism of using ROI for divisional performance evaluation
ROI does not take into consideration the amount of capital invested in the division whose performance is being evaluated
Which of the following statements pertaining to the ROI as a performance measure is incorrect
ROI relies on financial measures that are capable of being independently verified while other forms of performance measures are subject to manipulation
Which of the following is not a plausible cause of a systematic variance
Random error
Which of the following statements is correct
Random variances should typically not be investigated
"Outsourcing" a cost center is often done to
Reduce cost and obtain improve focus
Which of the following benefits is not typically associated with a move to a just-in-time (JIT) manufacturing system?
Reduction in employee training and education costs
The estimated cost to replicate assets of an investment center at the current level of service and functionality of these assets is defined as
Replacement cost
Which one of the following transfer pricing alternatives is based on determining an appropriate markup, where the markup is based on gross profits of unrelated firms selling similar products
Resale-price method
Which of the following is the most appropriate and comprehensive short-term financial-performance indicator for an investment center that is a division of a larger business entity
Residual income
Return on investment is the result of multiplying
Return on sales by asset turnover
The term used to refer to persistent variances (i.e. those that are likely to recur until corrected) is
Systematic variance
Expropriation occurs when the government in which a foreign company's investment assets are located
Takes ownership and control of those assets
Determining the standard fixed factory overhead cost applied to production for a period involves all the following essential elements except
The actual amount of fixed overhead cost incurred during the period
A key standard in international transfer pricing is
The arm's-length standard
The ROI ratio measures
The combined effect of both asset turnover and return on sales
The "death-spiral" effect refers to
The continual raising of prices, in response to decreases in sales volume, in an attempt to recover fixed costs
Which one of the following is defined as the difference between the actual direct labor hours worked and the standard direct labor hours allowed for the units manufactured, multiplied by the standard hourly wage rate per hour?
The direct labor efficiency variance
Which one of the following is defined as the difference between the actual hourly wage rate and the standard hourly wage rate, multiplied by the actual number of direct labor hours (DLHs) worked during a period?
The direct labor rate variance
The most likely result of using a negotiated transfer price is that
The end result might reflect the relative bargaining skills of the negotiating managers
The biggest problem with cost-based transfer prices is
The fact that their use may result in sub-optimal organization as a whole
The two approaches for estimating EVA are
The financing approach and the operating approach
Proration of manufacturing cost variances among ending inventories and cost of goods sold has the effect of carrying the cost (savings) of inefficient (efficient) operations of a period to
The income statement of the current period and the balance sheet of the current period
A materials usage variance can be caused by all the following except
The number of units produced during the period (i.e. output volume)
Determination of the useful life of an asset and choice of a depreciation method will affect all of the following except
The opportunity cost of lost sales on alternative projects
The total variable cost flexible-budget variance includes all the following except
The sales price variance
In the context of transfer pricing, dual pricing is
The simultaneous use of two or more transfer pricing methods
Customer-response time (CRT) is usually defined as
The time between when a customer places an order and the time when the order is received by the customer
By convention short-term financial control is accomplished by all the following except
The use of productivity analysis
The choice of valuation method for inventories would normally not affect which items used in calculating return on investment
The valuation of fixed assets used by an investment center
Which one of the following is an advantage of both ROI and RI
They both measure all elements important for measuring short-term financial performance of investment centers: revenues, costs, and investment
Traditional financial control systems have recently been criticized because
They fail to incorporate non-financial performance indicators into the evaluation process
All of the following are true of cost-based transfer prices except
They generally promote optimal decision-making from the standpoint of the organization as a whole
The greatest advantage of using a negotiated transfer price is
This may be the most practical approach when conflicts exist between selling and buying divisions
The primary purpose of calculating standard cost variances each period is
To achieve financial control regarding operating activities
Some accountants would argue that any variances from standard costs, when such standards are current, should be written off to COGS (or other income statement account). The principal conceptual rationale for this treatment is
To allocate such variances (as the alternative treatment) implies that asset values on the balance sheet (i.e. inventories) contain the cost of inefficiencies
Which of the following is not an objective of management control
Waste control
Which of the following factors is not usually important when deciding whether to investigate a variance?
Whether the variance is favorable or unfavorable
Systematic variances, as this term is used in the text, are persistent and most likely
Will recur unless corrected
The difference between the actual sales volume for a period and the flexible-budget sales volume is equal to
Zero-by definition
A (blank) standard gets progressively tighter over time
continuous-improvement
A standard that sets the performance criterion at a level that workers with proper training and experience can attain most of the time without extraordinary effort is a
currently attainable standard
