Exam 2 homework

Name the five​ steps, in​ order, in process costing when equivalent units are computed.

1. Summarize the flow of physical units of output. 2. Compute output in terms of equivalent units. 3. Summarize total costs to account for. 4. Compute cost per equivalent unit. 5. Assign total costs to units completed and to units in ending work in process.

Choose an example of how a manager can decrease variable costs while increasing fixed costs. A. Changing a sales force compensation plan from a percent of sales dollars to a fixed salary. B. Using hourly wage workers to replace a robotic machine. C. Hiring a subcontractor to do repairs on a​ per-visit basis rather than on an annual retainer basis. D. None of the above.

A

Describe three methods that managers can use to express CVP relationships. A. ​Equation, contribution​ margin, and graph method B. Target​ income, contribution​ margin, and graph method C. Operating​ leverage, target​ income, and contribution method D. ​Revenue, equation, and contribution margin method

A

Distinguish between actual costing and normal costing. A. Actual costing and normal costing differ in their use of actual or budgeted​ indirect-cost rates. B. Actual costing and normal costing differ in their use of actual or budgeted quantities of​ direct-cost inputs. C. Actual costing and normal costing differ in their use of actual or budgeted quantities of​ cost-allocation bases. D. Actual costing and normal costing differ in their use of actual or budgeted​ direct-cost rates.

A

Identify the appropriate​ way(s) to dispose of​ under- or overallocated overhead costs. A. ​(1) Proration to work in​ process, finished goods and cost of good​ sold, (2)​ Year-end write-off to cost of goods​ sold, (3) Restatement of all overhead entries using actual indirect costs rates rather than budgeted indirect cost rates. B. ​(1) Proration to all operating expense​ accounts, (2)​ Year-end write-off to miscellaneous​ expense, (3) Restatement of all overhead entries using budgeted indirect costs rates rather than actual indirect cost. C. ​(1) Proration to materials​ inventory, finished goods and cost of good​ sold, (2)​ Year-end write-off to work in process​ inventory, (3) Restatement of all overhead entries using budgeted indirect costs rates rather than actual indirect cost. D. No entry is required to dispose of over or​ under-allocated overhead.

A

Identify three major source documents used in​ job-costing systems. A. job cost record​ (sheet), materials requisition​ record, and labor time record B. balance​ sheet, income​ statement, and cash flow statement C. general​ journal, general​ ledger, and trial balance D. accounts receivable aging​ report, accounts payable aging​ report, and inventory control report

A

Select the description of sensitivity analysis and how the advent of electronic spreadsheets has affected its use. A. Sensitivity analysis is the​ "what-if" technique that managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes. The advent of the electronic spreadsheet has greatly increased the ability to explore the effect of alternative assumptions at minimal cost. B. Sensitivity analysis measures how much a company can charge for its products over and above the cost of acquiring or producing them. The advent of the electronic spreadsheet has greatly decreased the ability to explore the effect of alternative assumptions and is more expensive than previous methods. C. Sensitivity analysis is the difference between the selling price and variable cost per unit. The advent of the electronic spreadsheet has greatly increased the ability to explore the effect of alternative assumptions at minimal cost. D. Sensitivity analysis is the​ "what-if" technique that managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes. The advent of the electronic spreadsheet has greatly increased the ability to explore the effect of alternative assumptions but comes at a much higher cost to companies.

A

What is the advantage of using computerized source documents to prepare​ job-cost records? A. accuracy of the records—incorrect recording of​ amounts, incorrect job​ numbers, materials being​ "borrowed" for another job B. safeguarding the records from events such as theft or fire C. timeliness of the records —ensuring that the documents are available when needed D. none of the above

A

What problems might arise in estimating the degree of completion of semiconductor chips in a semiconductor​ plant? A. The accuracy of the estimates of completion depends on the care and skill of the estimator and the nature of the process. Semiconductor chips may differ substantially in the finishing necessary to obtain a final product. The amount of work necessary to finish a product may not always be easy to ascertain in advance. B. Estimating the degree of completion is usually difficult for direct material costs. Semiconductor chips may differ substantially in the amount of direct materials​ required, thus making the accuracy of the estimates of completion difficult. C. Department supervisors and line managerslong dash—individuals most familiar with the processlong dash—often make conversion cost estimates. Since these individuals have so many​ responsibilities, making the estimates is often too time consuming​ and, thus, cannot be completed in a timely manner. D. All of the above are correct.

A

A company might use budgeted costs rather than actual costs to compute​ direct-labor rates because A. the budgeted costs will result in a higher gross margin. B. it may be difficult to trace direct labor costs to jobs as they are completed. C. the budgeted costs are more accurate. D. the budgeted cost will result in lower corporate income taxes.

B

Choose an example of how a manager can increase variable costs while decreasing fixed costs. A. Hiring a subcontractor to do repairs on an annual retainer basis rather than on a​ per-visit basis. B. Subcontracting a component to a supplier on a​ per-unit basis to avoid purchasing a machine with a high fixed depreciation cost. C. Changing a sales force compensation plan from a percent of sales dollars to a fixed salary. D. None of the above.

B

Determine whether this statement is true or false.​ "In a​ normal-costing system, the amounts in the Manufacturing Overhead Control account will always equal the amounts in the Manufacturing Overhead Allocated​ account." A. The statement is true. B. The statement is false.

B

Distinguish between operating income and net income. A. Net income includes cost of goods sold in its​ calculation, whereas, operating income does not. B. Net income takes into account income​ taxes, whereas, operating income does not take income taxes into account. C. Operating income takes into account income​ taxes, whereas, net income does not take income taxes into account. D. Operating income includes operating costs in its​ calculation, whereas, net income does not.

B

Electronic Data Interchange​ (EDI) is helpful to managers because A. it increases product quality. B. it ensures that a purchase order is transmitted quickly and accurately to suppliers with minimum paperwork and costs. C. it increases manufacturing productivity. D. it lowers manufacturing costs.

B

Why should the FIFO method be called a modified or department FIFO​ method? A. FIFO is applied within each department to compile the cost of units transferred in. As a practical​ matter, however, units transferred out during a given period usually are carried at a single unit cost​ (i.e., determined by top management at the beginning of the​ period). Otherwise, the attempt to track costs on a pure FIFO basis throughout a series of processes would be cumbersome. B. FIFO is applied within each department to compile the cost of units transferred out. As a practical​ matter, however, units transferred in during a given period usually are carried at a single average unit cost​ (i.e., the average cost of units transferred out of the preceding​ department). Otherwise, the attempt to track costs on a pure FIFO basis throughout a series of processes would be cumbersome. C. Each department carries units transferred in during a given period at its own unit cost​ (determined by the actual costs incurred during the​ period). This provides the ability to track costs on a pure FIFO basis throughout a series of processes. D. None of the above are correct.

B

​"CVP analysis is both simple and simplistic. If you want realistic analysis to underpin your​ decisions, look beyond CVP​ analysis." Do you​ agree? Explain. A. CVP analysis is​ simple, with its assumption of fixed costs as the only revenue and cost​ driver, and linear revenue and cost relationships. It is not necessarily​ simplistic, though, since the basic ideas can be expanded upon to provide useful insights in more complex​ decision-making cases. B. CVP analysis is​ simple, with its assumption of output as the only revenue and cost​ driver, and linear revenue and cost relationships. It is not necessarily​ simplistic, though, since the basic ideas can be expanded upon to provide useful insights in more complex​ decision-making cases. C. CVP analysis is not simple or simplistic.​ It's assumption of output as just one of many revenue and cost​ drivers, and its​ non-linear revenue and cost relationships creates a complexity which makes it very difficult to understand and useful only in very complex​ decision-making cases. D. CVP analysis is​ simple, with its assumption of output as the only revenue and cost​ driver, and linear revenue and cost relationships. Because CVP analysis is so​ simplistic, it provides very little value in more complex​ decision-making cases.

B

Why should the accountant distinguish between​ transferred-in costs and additional direct material costs for each subsequent department in a​ process-costing system? ​(Select all that​ apply.) A. The direct materials are always added at the beginning of the department process. B. All direct materials may not be added at the beginning of the department process. C. Department supervisors and line managers are most familiar with the​ transferred-in costs, so they most often estimate those costs. Controllers are most familiar with the direct materials​ costs, thus they estimate the direct materials costs.​ Thus, the distinction between the two costs are really important. D. The control methods and responsibilities may be different for​ transferred-in items and materials added in the department. E. The control methods and responsibilities are always the same for​ transferred-in items and materials added in the department.

B and D

How does an increase in the income tax rate affect the breakeven​ point? A. An increase in the income tax rate decreases net income and would change the breakeven point. B. An increase in the income tax rate would increase the selling price. Customers will buy less units at an increased​ price, therefore, changing the breakeven point. C. An increase in the income tax rate decreases operating income and would change the breakeven point. D. None of the above. An increase in the income tax rate does not affect the breakeven point.

D

Name the three inventory methods commonly associated with process costing.

First-in, first out Weighted average Standard costing

Cost-volume-profit analysis examines A. the difference between the selling price and variable cost per unit. B. how much a company can charge for its products over and above the cost of acquiring or producing them. C. the behavior of total​ revenues, total​ costs, and operating income as changes occur in the output​ level, selling​ price, variable cost per​ unit, or fixed costs of a product. D. the​ "what-if" technique that managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes.

C

How can a company with multiple products compute its breakeven​ point? A. The breakeven point can be computed by assuming that each product sold has the same contribution margin per unit. B. The breakeven point can be computed by assuming that each product sold is sold at the same price per unit. C. The breakeven point can be computed by assuming there is a constant sales mix of products at different levels of total revenue. D. The breakeven point can not be computed with multiple products.

C

Identify the main difference between journal entries in process costing and job costing. A. The journal entries in process costing are posted to record the number of units as they are moved from one department to another. Journal entries in job costing are posted to record costs rather than number of units. B. The​ weighted-average method is used for the journal entries in process costing while the FIFO method is used for the journal entries in job costing. C. There is often more than one​ work-in-process account in process costing—​-one for each process. D. The journal entries in process costing are the same as those made in​ job-costing systems.

C

Identify the ways in which a house construction company may use​ job-cost information. A. ​(a) to divide the total costs of constructing all the houses by the total number of houses built to obtain an average cost of each​ house, and​ (b) to apply the average​ per-unit cost to each of the identical or similar houses built in that period B. ​(a) to report profit results to​ shareholders, and​ (b) to report taxable profits to tax authorities C. ​(a) to determine the profitability of individual​ jobs, (b) to assist in bidding on future​ jobs, and​ (c) to evaluate professionals who are in charge of managing individual jobs D. None of the above.

C

Select examples of two cost objects in companies using job costing. A. fixed costs and variable costs B. cost pool and cost allocation base C. products or jobs and responsibility centers or departments D. direct costs and indirect costs

C

Select the major advantage of the FIFO method for purposes of planning and control. A. A major advantage of FIFO is its ease of use for process industries that produce a wide variety of similar products and in complex conditions. B. A major advantage of FIFO is the relative computational simplicity and its reporting of a​ more-representative average unit cost when input prices fluctuate markedly from month to month. C. A major advantage of FIFO is that managers can judge the performance in the current period independently from the performance in the preceding period. D. All of these are advantages of the FIFO method.

C

Which of the following describes the distinctive characteristic of FIFO computations in assigning costs to units completed and to units in ending work in​ process? A. Calculates the equivalent unit cost of all the work done to date and assigns this cost to equivalent units completed and transferred out of the​ process, and to equivalent units in ending​ work-in-process inventory. B. Standard costs are assigned first to complete beginning​ work-in-process inventory, next started and completed new​ units, and finally to start new units that are in ending​ work-in-process inventory. C. Assigns the cost of the previous accounting​ period's equivalent units in beginning​ work-in-process inventory to the first units completed and transferred out of the process and assigns the cost of equivalent units worked on during the current period first to complete beginning​ inventory, next started and completed new​ units, and finally to units in ending​ work-in-process inventory. D. None of the above.

C

Which of the following describes the distinctive characteristic of​ weighted-average computations in assigning costs to units completed and to units in ending work in​ process? A. Assigns the cost of the previous accounting​ period's equivalent units in beginning​ work-in-process inventory to the first units completed and transferred out of the process and assigns the cost of equivalent units worked on during the current period first to complete beginning​ inventory, next started and completed new​ units, and finally to units in ending​ work-in-process inventory. B. Standard costs are assigned first to complete beginning​ work-in-process inventory, next started and completed new​ units, and finally to start new units that are in ending​ work-in-process inventory. C. Calculates the equivalent unit cost of all the work done to date and assigns this cost to equivalent units completed and transferred out of the​ process, and to equivalent units in ending​ work-in-process D. None of the above.

C

​"There is no such thing as a fixed cost. All costs can be​ 'unfixed' given sufficient​ time." Do you​ agree? What is the implication of your answer for CVP​ analysis? A. Items classified as fixed in the short run may become variable with a longer time horizon​ (period of time for a​ decision). CVP analysis depends upon these classifications remaining the​ same, though.​ Therefore, any change would cause the analysis to lose its usefulness. B. Once an item is classified as either fixed or​ variable, it cannot be changed. The classification of items as either fixed or variable has no impact on CVP​ analysis; therefore, the decision is irrelevent anyway. C. Many items classified as a fixed in the short run may become variable costs with a longer time horizon​ (period of time for a​ decision). CVP is not made any less relevant when the time horizon lengthens. D. Once an item is classified as either fixed or​ variable, it cannot be changed. CVP analysis depends upon these classifications remaining the​ same; therefore, any change would cause the analysis to lose its usefulness.

C

How does a​ job-costing system differ from a​ process-costing system? A. A​ job-costing system assigns costs to masses of similar​ units; a​ process-costing system assigns costs to distinct units. B. A​ process-costing system allocates indirect costs to​ products; a​ job-costing system does not allocate indirect costs to products. C. A​ job-costing system allocates indirect costs to​ products; a​ process-costing system does not allocate indirect costs to products. D. A​ job-costing system assigns costs to distinct​ units; a​ process-costing system assigns costs to masses of similar units.

D

Identify the​ reason(s) why most organizations use an annual period rather than a weekly or monthly period to compute budgeted​ indirect-cost rates. A. The denominator reason—the longer the time​ period, the less the effect of variations in output levels on the allocation of fixed costs. B. The numerator reason—the longer time​ period, the less influence of seasonal patterns. C. Neither A nor B. D. Both A and B.

D

Identify three different debit entries to the​ Work-in-Process Control​ T-account under normal costing. A. direct materials​ purchased, completion and transfer of jobs to finished​ goods, sale of completed goods B. direct materials​ purchased, manufacturing overhead​ incurred, completion and transfer of jobs to finished goods C. direct materials​ purchased, indirect manufacturing labor paid to​ employees, manufacturing overhead incurred D. direct materials​ used, direct manufacturing labor billed to a​ job, manufacturing overhead allocated to a job

D

In process​ costing, why are costs often divided into two main​ classifications? A. Process costing systems separate costs into cost categories according to the inventory method being used. Indirect costs are used under the​ weighted-average method and direct costs are used under the FIFO method. B. Process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process.​ Often, only two cost​ classifications, fixed and variable​ costs, are necessary. Fixed costs are only added at the start of the process and variable costs are added at the end. C. Process costing systems separate costs into cost categories according to the type of product or service being provided. Direct materials are applicable only to the manufacture of a product and conversion costs are applicable only when a service is being provided. D. Process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process.​ Often, only two cost​ classifications, direct materials and conversion​ costs, are necessary. Direct materials are frequently added at the start or end of the process and conversion costs are often added throughout the process.

D

What is operating​ leverage? How is knowing the degree of operating leverage helpful to​ managers? A. It describes the measure of competitiveness long dash— how much a company can charge for its products over and above the cost of acquiring them. Knowing the degree of operating leverage helps managers know how much of the​ company's revenues are available to cover fixed costs. B. It describes the quantity of output sold at which total revenues equal total costs. Knowing the degree of operating leverage helps managers avoid operating losses. C. It describes the amount by which budgeted​ (or actual) revenues exceed breakeven revenues. Knowing the degree of operating leverage helps managers know how far they can fall below budget before the breakeven point is reached and if they are in danger of suffering a loss. D. It describes the effects that fixed costs have on changes in operating income as changes occur in units sold and contribution margin. Knowing the degree of operating leverage at a given level of sales helps managers calculate the effect of fluctuations in sales on operating income.

D

Which of the following are examples of industries that use​ process-costing systems? A. Pharmaceutical B. Semiconductor Chips C. Oil refining D. All of the above

D

Why is it more accurate to describe the subject matter of this chapter as CVP analysis rather than as breakeven​ analysis? A. The breakeven analysis only denotes the study of the breakeven point. B. ​Cost-volume-profit is a more comprehensive term than breakeven analysis. C. The breakeven point is an incidental part of the relationship between​ cost, volume, and profit. D. All of the above.

D

Why might an advertising agency use job costing for an advertising campaign by​ PepsiCo, whereas a bank might use process costing to determine the cost of checking account​ deposits? A. Whenever a product or service is unique or​ distinct, process costing is the most efficient way to assign costs. Therefore since each banking transaction is​ unique, the banks use process costing to determine the cost of checking account deposits. B. An advertising agency provides the same service to all its​ clients, while a bank supplies its customers with specialized services. For that reason an advertising agency would use job costing to monitor the costs of an advertising campaign by PepsiCo. C. Job costing can be used to compute the cost of masses of similar​ services, in contrast process costing enables all the specific aspects of each job to be identified individually. D. Job costing enables all the specific aspects of each job to be​ identified, whereas process costing can be used to compute the cost of numerous identical or similar services.

D

​"The standard-costing method is particularly applicable to​ process-costing situations." Do you​ agree? Why? A. Yes.​ Standard-cost procedures are particularly appropriate to​ process-costing systems, but only when the products prices are relatively the same price and do not vary. B. No.​ Standard-cost procedures are never appropriate to​ process-costing systems under any circumstance. C. No.​ Standard-cost procedures are not particularly appropriate to​ process-costing systems where there are various combinations of materials and operations used to make a wide variety of similar products. It is better to use the​ weighted-average method, which simplifies all calculations. D. Yes.​ Standard-cost procedures are particularly appropriate to​ process-costing systems where there are various combinations of materials and operations used to make a wide variety of similar products.​ Standard-cost procedures also avoid the intricacies involved in detailed tracking with​ weighted-average or FIFO methods when there are frequent price variations over time.

D