Homework: Review: Chapters 1-12

What is an​ activity-based approach to designing a costing​ system? A. An​ activity-based approach describes a particular costing approach that uses broad averages for assigning the cost of resources uniformly to cost objects. B. An​ activity-based approach refines a costing system by focusing on individual activities as the fundamental cost objects. It uses the cost of these activities as the basis for assigning costs to other cost objects such as products or services. C. An​ activity-based approach traces direct costs to a cost object by using the actual​ direct-cost rates times the actual quantities of the​ direct-cost inputs. Indirect costs are allocated based on the actual​ indirect-cost rates times the actual quantities of the ​cost-allocation bases. D. An​ activity-based approach means making changes that result in cost numbers better measuring the way different cost​ objects, such as​ products, use different amounts of resources of the company. These changes require the assignment of costs to direct and indirect cost pools and the use of a single​ indirect-cost rate.

B

What is the key difference between a static budget and a flexible​ budget? A. A flexible budget is based on the level of output at the beginning of the​ period; a static budget is based on the actual output level in the budget period. B. A static budget is based on the level of output at the beginning of the​ period; a flexible budget is based on the actual output level in the budget period. C. A static budget is based on the level of output at the beginning of the​ period; a flexible budget is based on the actual unit prices in the budget period. D. None of the above.

B

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. 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. B. 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. C. 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. D. 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.

B

Why might managers find a​ flexible-budget analysis more informative than a​ static-budget analysis? A. A flexible budget is based on the level of output planned at the start of the budget period. It is developed around a single planned output level. B. A​ flexible-budget analysis enables a manager to distinguish how much of the difference between an actual result and a budgeted amount is due to​ (a) the difference between actual and budgeted output​ levels, and​ (b) the difference between actual and budgeted selling​ prices, variable​ costs, and fixed costs. C. The flexible budget is the hypothetical budget that is prepared at the start of the budget period. Managers use this budget as a goal for the period. D. None of the above.

B

​"The sales forecast is the cornerstone for​ budgeting." Why? A. The sales forecast is based on​ demand, and without demand for the product there would be no sales. B. Because production and inventory levels generally depend on the forecasted level of sales. C. The cost of goods sold​ budget, as the starting point for the operating​ budget, uses the budgeted unit sales. D. None of the above.

B

Choose the correct definition of a cost object. A. A cost object is a resource sacrificed or forgone to achieve a specific objective. Examples include direct​ materials, direct​ labor, and advertising. B. A cost object is a cost incurred​ (historical or past​ cost), as distinguished from a budgeted​ cost, which is a predicted or forecasted cost​ (a future​ cost). Examples include​ materials, labor, and overhead. C. A cost object is anything for which a separate measurement of costs is desired. Examples include a​ product, a​ service, and a customer. D. None of the above.

C A is the definition of A Cost. B is the definition of An Actual Cost.

Match the correct definition with each of the following​ terms: Contribution margin Contribution margin per unit Contribution margin percentage Definition difference between total revenues and total variable costs difference between selling price and variable cost per unit contribution margin per unit divided by selling price proportion of various products (or services) that constitute total unit sales quantity of output sold at which total revenues equal total costs

Contribution margin =difference between total revenues and total variable costs Contribution margin per unit =difference between selling price and variable cost per unit Contribution margin percentage =contribution margin per unit divided by selling price

Define relevant costs. Why are historical costs​ irrelevant? A. Relevant costs are past costs that differ among the alternative courses of action being considered. Historical costs are irrelevant because they are future costs​ and, therefore, cannot differ among alternative future courses of action. B. Relevant costs are expected future costs that do not differ among the alternative courses of action being considered. Historical costs are irrelevant because they are past costs​ and, therefore, differ among alternative future courses of action. C. Relevant costs are past costs that do not differ among the alternative courses of action being considered. Historical costs are irrelevant because they are also past costs​ and, therefore, differ among alternative future courses of action. D. Relevant costs are expected future costs that differ among the alternative courses of action being considered. Historical costs are irrelevant because they are past costs​ and, therefore, cannot differ among alternative future courses of action.

D

How does variance analysis help in continuous​ improvement? A. Favorable variances can provide information if the organization can identify why a favorable variance occured. Steps can often be taken to replicate those conditions more often. B. The underlying causes of unfavorable variances are​ identified, and corrective action taken where possible. C. Variance analysis can help in continuous improvement by using unfavorable variances to place blame on certain managers. This creates the incentive to find creative ways for improvement. Having favorable variances results in a more efficient and profitable company. D. A and B.

D

What is a possible consequence of using broad averaging to calculate unit​ costs? A. By ignoring the allocation of indirect costs to the cost​ objects, broad averaging can lead to product overcosting. B. Broad​ averaging, which ignores actual average indirect cost​ rates, can lead to product overcosting or product undercosting. C. Broad averaging does not take into account variable cost​ components, and​ therefore, this method is unable to provide meaningful data when estimating costs across various levels of activity. D. By ignoring the variation in the consumption of resources by different cost​ objects, broad averaging can lead to inaccurate product costing.

D

What is broad averaging and what consequences can it have on​ costs? What is broad​ averaging? A. Broad averaging describes a costing system that uses direct costs to assign the cost of resources directly to cost objects. B. Broad averaging describes a costing approach that allocates indirect costs to cost objects based on the budgeted average indirect cost rates multiplied by the budgeted quantities of the​ cost-allocation bases. C. Broad averaging describes the method of calculating the average fixed manufacturing overhead cost of each unit produced or service performed. D. Broad averaging describes a costing approach that uses broad averages for assigning the cost of resources uniformly to cost objects.

D

The business functions in the value chain​ include: A. Research and​ development, Design of​ products, services or​ processes, Production,​ Marketing, Distribution, and Customer service. B. Research and​ development, Making decisions by choosing among​ alternatives, Production,​ Distribution, and Customer service. C. Identifying the problem and​ uncertainties, Obtaining​ information, Making predictions about the​ future, Making decisions by choosing among​ alternatives, and Implementing the decision. D. Manufacturing, Packaging, and Distribution.

A

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 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 C. ​(a) to report profit results to​ shareholders, and​ (b) to report taxable profits to tax authorities D. None of the above.

B

Why should managers worry about product overcosting or​ undercosting? A. Undercosting may result in companies selling products on which they are in fact losing​ money, when they erroneously believe them to be profitable. B. Overcosting may result in competitors entering a market and taking market share for products that a company erroneously believes are​ low-margin or even unprofitable. C. Undercosting may result in customer dissatisfaction due to erroneously high sales prices set by management. D. Both A. and B.

D

Distinguish between inventoriable costs and period costs. A. Inventoriable costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold when the product is sold. Period costs are all costs in the income statement other than cost of goods sold. Period costs are treated as expenses of the accounting period in which they are incurred because they are expected to not benefit future periods. B. Inventoriable costs are all costs of goods purchased that are resold in a subsequent period. Period costs are all costs of goods purchased that are resold within the same period. C. Inventoriable costs include direct manufacturing materials and direct manufacturing labor costs that are capitalized into inventory and remain on the balance sheet until sold. Period costs include indirect manufacturing​ (or manufacturing​ overhead) costs and are expensed as incurred through the cost of goods sold account. D. Inventoriable costs include material costs and are capitalized as assets to the company until the items are sold. Period costs include labor and overhead costs and are expensed as incurred. Period costs are reported in the income statement within the cost of goods sold account.

A

Distinguish direct costs from indirect costs. A. Direct costs are related to the particular cost object and can be traced to that cost object in a​ cost-effective way while indirect costs are related to the particular cost object but cannot be traced to that cost object in a​ cost-effective way. B. Direct costs include the acquisition costs of all materials that eventually become part of the cost object and can be traced to the cost object in an economically feasible way while indirect costs include compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way. C. Direct costs are those that change in total in proportion to changes in the related level of total activity or volume while indirect costs are those that remain unchanged in total for a given time​ period, despite wide changes in the related level of total activity or volume. D. Direct costs are historical or past costs incurred while indirect costs are predicted or forecasted costs.

A

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

A

When using the​ high-low method, should you base the high and low observations on the dependent variable or on the cost​ driver? A. Cost driver B. Dependent variable

A

Which of the following best describes cost​ allocation? A. the assigning of indirect costs to the chosen cost object. B. a factor that links in a systematic way an indirect cost or group of indirect costs to a cost object. C. the assigning of direct costs to the chosen cost object. D. a grouping of individual cost items.

A

Why is it important to classify costs into a cost​ hierarchy? A. It is important to classify costs into a cost hierarchy because costs in different cost pools relate to different​ cost-allocation bases and not all​ cost-allocation bases are unit level. If costs were not classified into a cost​ hierarchy, the alternative would be to consider all costs as​ unit-level costs, leading to misallocation of those costs that are not​ unit-level costs. B. It is important to classify costs into a cost hierarchy because it allows managers to evaluate the importance of costs in the manufacturing process. If costs were not classified into a cost​ hierarchy, managers would be unable to assess the importance of each cost incurred in manufacturing the product. C. It is important to classify costs into a cost hierarchy because although costs in different cost pools relate to different​ cost-allocation bases, all​ cost-allocation bases are​ unit-level. Classifying costs into a cost hierarchy allows managers to spread costs evenly across all units. D. It is important to classify costs into a cost hierarchy because costs in different cost pools relate to only one​ cost-allocation base and​ cost-allocation bases are always​ unit-level. Classifying costs into a cost hierarchy allows managers to spread costs evenly across all units.

A

​"All future costs are​ relevant." Do you​ agree? Why? A. No. Relevant costs are defined as those expected future costs that differ among alternative courses of action being considered.​ Thus, future costs that do not differ among the alternatives are irrelevant to deciding which alternative to choose. B. Yes. Relevant costs are defined as those expected future costs that do not differ among alternative courses of action being considered.​ Thus, future costs that differ among the alternatives are irrelevant to deciding which alternative to choose. C. No. Relevant costs are defined as those expected future costs that do not differ among alternative courses of action being considered.​ Thus, future costs that differ among the alternatives are irrelevant to deciding which alternative to choose. D. Yes. Relevant costs are defined as those expected future costs that differ or do not differ among alternative courses of action being considered.​ Thus, future costs are always relevant to deciding which alternative to choose.

A

Match the definitions to the two generic strategies. 1. is an​ organization's ability to achieve lower costs relative to competitors through productivity and efficiency​ improvements, elimination of​ waste, and tight cost control. 2. is an​ organization's ability to offer products or services perceived by its customers to be superior and unique relative to the products or services of its competitors. A. Cost leadership B. Product differentiation

A B

Distinguish planning decisions from control decisions. A. Planning decisions focus on organizational goals without consideration of past performance. Control decisions focus on predicting results under various alternative ways of achieving those​ goals, deciding how to attain the desired​ goals, and deciding how to evaluate performance. B. Planning decisions focus on selecting organization​ goals, predicting results under various alternative ways of achieving those​ goals, deciding how to attain the desired​ goals, and communicating the goals and how to attain them to the entire organization.Control decisions focus on taking actions that implement the planning​ decisions, deciding how to evaluate​ performance, and what related feedback to provide that will help future decision making. C. Planning decisions focus on examining past performance and systemically exploring alternative ways to make​ better-informed decisions and plans in the future. Control decisions focus on taking actions that implement the planning​ decisions, deciding how to evaluate​ performance, and what related feedback to provide that will help future decision making. D. Planning decisions are budget​ oriented, where control decisions focus on financial reporting.

B

The two major cost objects that managers focus on in companies using job costing are A. cost pool and cost allocation base. B. products or jobs and responsibility centers or departments. C. fixed costs and variable costs. D. direct costs and indirect costs.

B

What are three different types of inventory that manufacturing companies​ hold? A. Direct​ materials, direct​ labor, and overhead B. Direct​ materials, work-in-process, and finished goods C. Production, retail, and merchandising D. Variable, fixed, and overhead

B

What is the relationship between management by exception and variance​ analysis? A. Management by exception is the practice of concentrating on areas that are operating unfavorably and giving less attention to areas operating better than expected. Variance analysis helps managers identify areas that are operating unfavorably. B. Management by exception is the practice of concentrating on areas not operating as expected and giving less attention to areas operating as expected. Variance analysis helps managers identify areas not operating as expected. C. Management by exception is the practice of concentrating on areas outside a​ company's normal operations and giving less attention to the​ day-to-day operations. Variance analysis helps managers identify areas that are outside a​ company's normal operations. D. None of the above.

B

Choose the correct description of variable and fixed costs. A. A variable cost is considered to be a unit​ cost, such as the​ per-attendee-cost of hiring a musical group to perform at an event. A fixed cost is considered to be a total​ cost, such as the total fee paid to the musical group for performing at the event. B. A variable cost changes in total in proportion to changes in the related level of total activity or​ volume, such as a sales commission that is a percentage of each sales revenue dollar. A fixed cost remains unchanged in total for a given time​ period, despite wide changes in the related level of total activity or​ volume, such as a fixed annual leasing cost of a machine. C. A variable cost is related to a particular cost object and can be traced to it in an economically feasible​ way, such as the cost of steel in the manufacturing of a luxury car. A fixed cost is related to a particular cost object but cannot be traced to it in an economically feasible​ way, such as the salary of a plant manager who oversees production of many different types of luxury cars produced at the same plant. D. All of the above.

B C is the definitions of A Direct Cost and A Indirect Cost.

Cost-volume-profit analysis examines A. how much a company can charge for its products over and above the cost of acquiring or producing them. B. 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. 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 difference between the selling price and variable cost per unit.

C

Differences in operating income between variable costing and absorption costing are due solely to accounting for fixed costs. Do you​ agree? A. Yes, that is the only difference. B. ​No, differences in operating income between variable costing and absorption costing are due to accounting for variable manufacturing costs. C. ​No, differences in operating income between variable costing and absorption costing are due to accounting for fixed manufacturing costs. D. ​No, there is no difference in operating income between variable costing and absorption costing.

C

Identify the appropriate​ way(s) to dispose of​ under- or overallocated overhead costs. A. ​(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. B. ​(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. C. ​(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. D. No entry is required to dispose of over or​ under-allocated overhead.

C

Three criteria that are important when choosing among alternative cost functions​ are: A. Goodness of​ fit, slope of regression​ line, the speed with which cost estimates can be determined B. Economic​ plauability, goodness of​ fit, the speed with which cost estimates can be determined C. Economic​ plausability, goodness of​ fit, slope of regression line D. None of the above

C

What is the relevant​ range? What role does the​ relevant-range concept play in explaining how costs​ behave? A. The relevant range is the band of normal activity level or volume in which there is an abnormal relationship between the level of activity or volume and the variable cost per unit. Costs are described as relevant or irrelevant with respect to a particular relevant range. B. The relevant range is the band of normal activity level or volume in which there is no relationship between the level of activity or volume and the cost in question. Costs are described as relevant or irrelevant with respect to a particular relevant range. C. The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question. Costs are described as variable or fixed with respect to a particular relevant range. D. The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the related fixed costs. Costs are described as direct or indirect with respect to a particular relevant range.

C

What​ assumption(s) are frequently made when estimating a cost​ function? A. Variations in the level of a single activity explain the variations in the related total costs. B. Cost behavior is approximated by a linear function within the relevant range. C. Both of the above. D. Neither of the above.

C

Which of the following statements is​ true? A. ABC systems apply equally well to manufacturing and merchandising​ companies, but not to service companies. Service companies generally carry no​ inventory, and​ therefore, an ABC system would provide​ little, if​ any, benefit. B. ABC systems apply equally well to manufacturing and​ retail-oriented merchandising​ companies, but not to​ distribution-oriented merchandising​ companies, which carry only finished goods​ inventory, or to service​ companies, which do not carry inventory. C. ABC systems apply equally well to​ manufacturing, merchandising and service companies. D. ABC systems provide benefit to manufacturing companies only. Merchandising companies carry only merchandising​ (finished goods) inventory and service companies generally carry no inventory at​ all, and​ therefore, an ABC system would not apply to these companies.

C

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

D

How does management accounting differ from financial​ accounting? A. Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting​ measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. B. Management accounting​ measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles​ (GAAP). C. Management accounting​ measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. Financial accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. D. Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles​ (GAAP).

D

Select the statement that best distinguishes between a favorable variance and an unfavorable variance. A. A favorable variance does not require management to investigate the cause of the variance. An unfavorable variance always requires management to investigate the cause of the variance. B. A favorable variance has a result of increasing the account balance​ (regardless of the account​ type) relative to the budgeted amount. An unfavorable variance has a result of decreasing the account balance relative to the budgeted amount. C. A favorable variance has a result of increasing sales revenue relative to the budgeted amount. An unfavorable variance has a result of decreasing variable costs relative to the budgeted amount. D. A favorable variance has a result of increasing operating income relative to the budgeted amount. An unfavorable variance has a result of decreasing operating income relative to the budgeted amount.

D

What are the four levels of a cost​ hierarchy? A 1. Design costs 2. Manufacturing costs 3. Distribution costs 4. Customer service costs B 1. Direct costs 2. Indirect costs 3. Variable costs 4. Fixed costs C 1. Direct materials 2. Direct labor 3. Direct manufacturing overhead 4. Indirect manufacturing overhead D 1. Output​ unit-level costs 2. ​Batch-level costs 3. Product-sustaining costs or​ service-sustaining costs 4. Facility-sustaining costs

D

What is a cost​ driver? A. A cost driver is a factor affecting direct or indirect cost classifications. For​ example, the availability of​ information-gathering technology is a driver as to whether certain​ low-cost materials used in the manufacturing process is considered a direct or indirect cost of producing a​ motor-vehicle. B. A cost driver is a cost that is related to a particular cost object but cannot be traced to it in an economically feasible​ way, such as the salary of a plant manager who oversees production of many different types of luxury cars produced at the same plant. C. A cost driver is a cost that changes in total in proportion to changes in the related level of total activity or volume. For​ example, the tons of steel needed to produce a vehicle is a driver of the total cost for that vehicle. D. A cost driver is a​ variable, such as the level of activity or​ volume, which causally affects total costs over a given time span. A change in the cost driver results in a change in the level of total costs. For​ example, the number of vehicles assembled is a driver of the costs of steering wheels on a​ motor-vehicle assembly line.

D

What is the definition of a master​ budget? A. A master budget is a budget that focuses on the budgeted cost of the activities necessary to produce and sell products and services. B. A master budget is a budget that is always available for a specified future period. It is created by continually adding a​ month, quarter, or year to the period that just ended. C. A master budget is a mathematical representation of the relationships among operating​ activities, financing​ activities, and other factors that affect the company. D. A master budget is a budget that expresses​ management's operating and financial plans for a specified period and includes a set of budgeted financial statements.

D

Which of the following is an example that critics of absorption costing may use to show its potential for leading to undesirable incentives for​ managers? A. Plant managers may defer maintenance beyond the current period to free up more time for production. B. Plant managers may switch production to those orders that absorb the highest amount of fixed manufacturing​ overhead, irrespective of the demand by customers. C. Plant managers may accept a particular order to increase production even though another plant in the same company is better suited to handle that order. D. All of the above.

D