Managerial Accounting Chapter 1 Key Terms, Homework
8) Which of the following statements about the internal control is not correct? 1) A company uses internal control to provide absolute assurance that its financial reports are reliable, to achieve efficient and effective operations, and to ensure compliance with applicable laws and regulations.
1) A company uses internal control to provide absolute assurance that its financial reports are reliable, to achieve efficient and effective operations, and to ensure compliance with applicable laws and regulations. 2) The Sarbanes-Oxley Act of 2002 requires that a company's annual report contain an assessment by management of the effectiveness of the company's internal control structure. 3) A preventative internal control deters undesirable events from occurring while a detective control detects undesirable events that have already occurred. 4) All of the above statements are correct.
7) Which of the following statements about corporate social responsibility (CSR) is not correct? 4) All of the above statements are correct.
1) CSR is a concept whereby organizations consider the needs of all stakeholders when making decisions. 2) CSR extends beyond legal compliance. 3) CSR includes voluntary actions that satisfy stakeholder expectations. 4) All of the above statements are correct.
4. Which of the following is a procedure inherent in the Theory of Constraints? 4) Improvement efforts must be focused on the constraint.
1) Identify the strongest link 2) Do not place a greater strain on the system that the strongest link can handle. 3) Concentrate improvement efforts on strengthening the strongest link. 4) Improvement efforts must be focused on the constraint.
17. Using the data from Question # 16, The best estimate of the total monthly fixed manufacturing cost for Edeen Corporation is:
2. $351,000 FIXED COST = Total Cost - Variable Cost = $1,006,800 - $655,800 = $351,000
16. Edeen Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. Production Volume 5000 units 6000 units Direct Materials $311,000 $373,200 Direct Labor $171,500 $205,800 Overhead $415,000 $427,800 The best estimate of the total variable manufacturing cost per unit is:
3. $109.30
Manufacturing overhead consists of:
3. all manufacturing costs, except direct materials and direct labor.
Strategy
A company's "game plan" for attracting customers by distinguishing itself from competitors. (p. 11)
Corporate social responsibility
A concept whereby organizations consider the needs of all stake-holders when making decisions. (pg. 14)
Detective control
A control that detects undesirable events that have already occurred. (p. 24)
Preventive control
A control that deters undesirable events from occurring. (p. 24)
Budget
A detailed plan for the future that is usually expressed in formal quantitative terms. (pg. 3)
Sarbanes-Oxley Act of 2002
A law intended to protect the interests of those who invest in publicly traded companies by improving the reliability and accuracy of corporate financial reports and disclosures. (p. 23)
Lean Production
A management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders. (pg. 16)
Segment
A part or activity of an organization about which managers would like cost, revenue, or profit data. (p. 3)
Internal control
A process designed to provide reasonable assurance that objectives are being achieved. (p. 24)
Enterprise risk management
A process used by a company to identify its risks and develop responses to them that enable it to be reasonably assured of meeting its goals. (pg. 12)
Performance report
A report that compares budgeted data to actual data to highlight instances of excellent and unsatisfactory performance. (p. 4)
Business process
A series of steps that are followed in order to carry out some task in a business. (pg. 15)
5) Which of the following statements is correct? C) A strategy is a game plan that enables companies to attract customers by distinguishing itself from competitors. Feedback: A business process is a series of steps that are followed in order to carry out some task in a business. On the other hand, a value chain consists of the major business functions that add value to a company's products and services. (Thus, choice A is an incorrect statement.) Lean production differs from traditional manufacturing methods, which encourage departments to maximize their output even it if exceeds customer demand and bloats inventories. Because lean production only allows production in response to customer orders, minimal inventories result. This approach also results in fewer defects than traditional production methods. (Thus, choice B is an incorrect statement.) A strategy is a game plan that enables companies to attract customers by distinguishing itself from competitors. (Thus, choice C is the correct statement.)
A) A business process consists of the major business functions that add value to a company's products and services. B) Lean production bloats inventories and results in more defects. C) A strategy is a game plan that enables companies to attract customers by distinguishing itself from competitors. D) All of the above statements are correct.
5) Which of the following statements is correct? C) The Theory of Constraints is based on the insight that effectively managing what it is that prevents you from getting more of what you want is a key to success. FEEDBACK: A business process is a series of steps that are followed in order to carry out some take in a business. On the other hand, a value chain consists of the major business functions that add value to a company's products and services. (Thus, choice A is incorrect.) Lean thinking differs from traditional manufacturing methods, which encourage departments to maximize their output even it if exceeds customer demand and bloats inventories. Because lean thinking only allows production in response to customer orders, minimal inventories result. This approach also results in fewer defects than traditional production methods. (Thus, choice B is incorrect.) A constraint is anything that prevents you from getting more of what you want. The Theory of Constraints is based on the insight that effectively managing the constraint is a key to success. (Thus, choice C is correct.)
A) A business process consists of the major business functions that add value to a company's products and services. B) Lean thinking bloats inventories and results in more defects. C) The Theory of Constraints is based on the insight that effectively managing what it is that prevents you from getting more of what you want is a key to success. D) All of the above statements are correct.
9) Which of the following statements about the internal control is not correct? A company uses internal control to provide absolute assurance that its financial reports are reliable, to achieve efficient and effective operations, and to ensure compliance with applicable laws and regulations. FEEDBACK: Internal control is a process designed to provide reasonable assurance that objectives are being achieved. A company uses internal control to provide reasonable (but not absolute) assurance that its financial reports are reliable. Companies also use internal controls to achieve efficient and effective operations and to ensure compliance with applicable laws and regulations.
A) A company uses internal control to provide absolute assurance that its financial reports are reliable, to achieve efficient and effective operations, and to ensure compliance with applicable laws and regulations. B) The Sarbanes-Oxley Act of 2002 requires that a company's annual report contain an assessment by management of the effectiveness of the company's internal control structure. C) A preventative internal control deters undesirable events from occurring while a detective control detects undesirable events that have already occurred. D) All of the above statements are correct.
2. Which of the following statements is not correct? A) A plan is always expressed in formal quantitative terms. Feedback: Plans include the goals established and information specifying how those goals will be achieved. As such, plans may or may not be expressed in formal quantitative terms. On the other hand, plans are often accompanied by a budget. A budget is a detailed plan for the future that is usually expressed in formal quantitative terms.
A) A plan is always expressed in formal quantitative terms. B) Planning involves establishing goals and specifying how to achieve them. C) Controlling involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change. D) Decision making involves selecting a course of action from competing alternatives.
7) The IMA's Statement of Ethical Professional Practice includes which of the following broad categories? D) All of the above Feedback: The IMA's Statement of Ethical Professional Practice includes all of the following broad categories: competence, confidentiality, integrity, and credibility.
A) Competence B) Confidentiality C) Credibility D) All of the above
7) The IMA's Statement of Ethical Professional Practice includes which of the following broad categories? D) All of the above. (and credibility)
A) Competence. B) Confidentiality. C) Integrity. D) All of the above. (and credibility)
8) Which of the following statements about corporate social responsibility is not correct? D) All of the above statements are correct.
A) Corporate social responsibility is a concept whereby organizations consider the needs of all stakeholders when making decisions. B) Corporate social responsibility extends beyond legal compliance. C) Corporate social responsibility includes voluntary actions that satisfy stakeholder expectations. D) All of the above statements are correct.
4) Which of the following statements is not correct? A) Corporate social responsibility is a process used by a company to identify risks relating to strategy, plan, and decision and develop responses to them that enable it to be reasonably assured of meeting its goals. Feedback: Enterprise risk management responsibility is a process used by a company to identify risks relating to strategy, plan, and decision and develop responses to them that enable it to be reasonably assured of meeting its goals. Corporate social responsibility is a concept whereby organizations consider the needs of all stakeholders when making decisions.
A) Corporate social responsibility is a process used by a company to identify risks relating to strategy, plan, and decision and develop responses to them that enable it to be reasonably assured of meeting its goals. B) Controls cannot completely eliminate risks. C) Risk management is a critically important aspect of decision making. D) All of the above are correct statements.
4)In order to do their jobs, managers must possess a variety of skills including: D) All of the above.
A) Enterprise risk management skills. B) Process management skills. C) Measurement skills. D) All of the above.
6) Which of the following is a procedure inherent in the Theory of Constraints? D) Improvement efforts must be focused on the constraint. FEEDBACK: Procedures inherent in the Theory of Constraints include, but are not limited to the following: identify the weakest (rather than the strongest) link, do not place a greater strain on the system that the weakest link (rather than the strongest link) can handle, and concentrate improvement efforts on strengthening the weakest (rather than the strongest) link. As such, answers A, B, and C are incorrect. To be effective, improvement efforts must be focused on the constraint, as stated in answer D.
A) Identify the strongest link. B) Do not place a greater strain on the system that the strongest link can handle. C) Concentrate improvement efforts on strengthening the strongest link. D) Improvement efforts must be focused on the constraint.
10) Which of the following statements about lean production is not correct? C) Lean thinking organizes work departmentally and encourages departments to maximize their output. Feedback: Lean thinking differs from traditional manufacturing methods,
A) Lean production is a management approach that organizes resources around the flow of business processes. B) Lean production is often called just-in-time production (or JIT). C) Lean thinking organizes work departmentally and encourages departments to maximize their output. D) When a lean production process management method is in use, units are only produced in response to customer orders.
6) A _______________ position in an organization is directly related to the achievement of the organization's basic objectives. A) Line
A) Line B) Management C) Staff D) None of the above.
9) Which of the following statements about the value chain is not correct? C) From a control and decision-making standpoint, managers need to focus on functional performance rather than process excellence.
A) Managers need to understand the value chain to be effective in terms of planning, control and decision making. B) The value chain consists of the major business functions that add value to a company's product and services. C) From a control and decision-making standpoint, managers need to focus on functional performance rather than process excellence. D) The term value chain is often used to describe how an organization's functional departments interact with one another to form business processes.
8) Which of the following statements about the Sarbanes-Oxley Act of 2002 is not correct? A) The Act requires the Chief Financial Officer and the Controller certify in writing that their company's financial statements and accompanying disclosures fairly represent the results of operations. FEEDBACK: The Sarbanes-Oxley Act of 2002 requires that the Chief Executive Officer (CEO) and CFO (rather than the CFO and the Controller) certify in writing that their company's financial statements and accompanying disclosures fairly represent the results of operations.
A) The Act requires the Chief Financial Officer and the Controller certify in writing that their company's financial statements and accompanying disclosures fairly represent the results of operations. B) The Act requires that a company's annual report contain an internal control report. C) The Act establishes severe penalties of as many as 20 years in prison for altering or destroying any documents that may eventually be used in an official proceeding and as many as 10 years in prison for managers who retaliate against a whistle-blower who goes outside the chain of command to report misconduct. D) The Act places the power to hire, compensate, and terminate the public accounting firm that audits a company's financial reports in the hands of the audit committee.
Within the relevant range, as the number of units produced increases: D) All of the above.
A) The variable cost per unit remains the same B) Fixed costs in total remain the same C) Variable costs increase in total D) All of the above.
5) Managerial accounting places considerable weight on: D) detailed segment reports about departments, products, and customers.
A) generally accepted accounting principles. B) the financial history of the entity. C) ensuring that all transactions are properly recorded. D) detailed segment reports about departments, products, and customers.
3. A performance report: D) is all of the above.
A) is part of the control process. B) compares budgeted data to actual data in an effort to identify excellent performance. C) is prepared to identify unsatisfactory performance. D) is all of the above.
6) The focal point of a company's strategy should be: C) its target customers. Feedback: The focal point of a company's strategy should be its target customers. A company can only succeed if it creates a reason for its target customers to choose it over a competitor.
A) profitability. B) the quality of its products and/or services. C) its target customers. D) integrity.
1. Managerial accounting is concerned with: C) providing information for use within the organization.
A) reporting financial information to stockholders. B) reporting financial information to regulators. C) providing information for use within the organization. D) the financial consequences of past activities.
6. The wages of the company's accountant.
Administrative cost
Which of the following would be classified as an internal failure cost on a quality cost report?
C. Net cost of scrap.
The cost of the cushions that are used to manufacture sofas is best described as a:
C. variable cost
Which of the following would be classified as a prevention cost on a quality cost report?
D. Technical support provided to suppliers.
3. The wages of employees who assemble computers from components.
Direct labor cost
1. The cost of a hard drive installed in a computer.
Direct materials cost
7. External failure costs are limited to the costs of repairing defective products that are under warranty.
FALSE
As activity increases within the relevant range, fixed costs remain constant on a per unit basis.
FALSE
Period costs are also known as inventoriable costs.
FALSE
Sales (45,000 * $16 per unit) Variable Expenses (45,000 * $6 per unit) Sales - Variable Expenses = Contribution margin Fixed expense doesn't change Contribution margin - Fixed expense = Net operating income
Harris Company Contribution Format Income Statement Sales $720,000 Variable expenses 270,000 Contribution margin 450,000 Fixed expense 300,000 Net operating income $150,000
Question 1-1 How does managerial accounting differ from financial accounting?
Managerial accounting is concerned with providing information to managers for use within the organization. Financial accounting is concerned with providing information to stockholders, creditors, and others outside of the organization. Financial accounting is mandatory for external reports and it needs to comply with rules, such as generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS), whereas managerial accounting is not mandatory and it does not need to comply with externally imposed rules.
5. The wages of the assembly shop's supervisor.
Manufacturing overhead cost
7. Depreciation on equipment used to test assembled computers before release to customers.
Manufacturing overhead cost
8. Rent on the facility in the industrial park.
Manufacturing overhead cost, Marketing and selling cost, Administrative cost
2. The cost of advertising in the Puget Sound Computer User newspaper.
Marketing and selling cost
4. Sales commissions paid to the company's salespeople.
Marketing and selling cost
1. Depreciation on salespersons' cars.
Period cost
12. The wages of the receptionist in the administrative offices.
Period cost
13. Cost of leasing the corporate jet used by the company's executives.
Period cost
14. The cost of renting rooms at a Florida resort for the annual sales conference.
Period cost
4. Salaries of personnel who work in the finished goods warehouse.
Period cost
8. Materials used for boxing products for shipment overseas. (Units are not normally boxed.)
Period cost
9. Advertising costs.
Period cost
10. Workers' compensation insurance for factory employees.
Product cost
11. Depreciation on chairs and tables in the factory lunchroom.
Product cost
15. The cost of packaging the company's product.
Product cost
2. Rent on equipment used in the factory.
Product cost
3. Lubricants used for machine maintenance.
Product cost
5. Soap and paper towels used by factory workers at the end of a shift.
Product cost
6. Factory supervisors' salaries.
Product cost
7. Heat, water, and power consumed in the factory.
Product cost
3. Harris Company manufactures and sells a single product.
Required: 1. A partially completed schedule of the company's total and per unit costs over the relevant range of 30,000 to 50,000 units produced and sold annually is given below. Complete the schedule of the company's total and unit costs. (Round the per unit variable cost and fixed cost to 2 decimal places.)
2. Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help it finance its growth. The bank requires financial statements before approving such a loan.
Required: Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank.
1. The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that are incurred at the company.
Required: For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answers and double click the box with the question mark to empty the box for a wrong answers.)
Decision making
Selecting a ccourse of actioon from competing alternatives. (pg. 3)
All of the following are examples of opportunity costs: salary given up to start a business; rental income given up when you live in a house you own; interest income that could be earned on money spent for a car.
TRUE
Conversion cost is the sum of direct labor and manufacturing overhead.
TRUE
Prime cost is the sum of direct labor and direct material.
TRUE
The cost of goods sold of a manufacturing company equals beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory.
TRUE
don't be confused by these 3 costs simply add them together to get the total cost Total Costs: $311,000 + $171,500 + $415,000 = $897,500 $373,200 + $205,800 + $427,800 = $1,006,800 Change in Costs: $1,006,800 - $897,500 = $109,300 Change in cost per unit = variable cost per unit = $109,300 / 1000 units = $109.30
The best estimate of the total variable manufacturing cost per unit is: $109.30
Value chain
The major business functions that add value to a company's products and services, such as research and development, product design, manufacturing, marketing, distribution, and customer service. (p. 15)
Managerial accounting
The phase of accounting that is concerned with providing information to managers for use within the organization. (pg. 2)
Financial accounting
The phase of accounting that is concerned with reporting historical financial information to external parties, such as stockholders, creditors, and regulators. (pg. 2)
Planning
The process of establishing goals and specifying how to achieve them. (p. 3)
Controlling
The process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change. (pg. 3)
Corporate governance
The system by which a company is directed and controlled. (p. 23)
$180,000 / 30,000 units = $6 per unit (variable costs) never changes (fixed costs)
Units Produced and sold 30,000 --- 40,000 --- 50,000 Total costs: Variable costs $180,000 --- 240,000 --- 300,000 Fixed costs 300,000 --- 300,000 --- 300,000 Total costs $480,000 --- $540,000 --- $600,000 Cost per unit: Variable cost 6.00 --- 6.00 --- 6.00 Fixed cost 10.00 --- 7.50 --- 6.00 Total cost per unit $16.00 --- $13.50 --- $12.00
Now - suppose the question also asked you to find the FIXED COST (in dollars), here is how you would do it: Go back to either the high or low units and calculate the Total Variable Cost. Lets use the "low units" of 5000 units.
Variable Cost = 5000 units x $109.30 per unit = $546,500 To find the Fixed Cost you would just subtract the Variable cost from the TOTAL Cost at the low units: FIXED COST = Total Cost - Variable Cost = $897,500 - $546,500 = $351,000
By definition, Fixed Costs are "fixed" and will NOT change with changes in units like variable costs do. So you can check your answer for Fixed costs by going back to the "high units" of 6000 units and recalculating Fixed Costs the same way and checking to see if the answer is the same:
Variable Cost = 6000 units x $109.30 per unit = $655,800 FIXED COST = Total Cost - Variable Cost = $1,006,800 - $655,800 = $351,000
Which of the following is an example of a period cost?
b. Advertising cost for a new product campaign.
The one cost that would be classified as part of both prime cost and conversion cost would be:
b. direct labor.
Manufacturing overhead includes:
c. all manufacturing costs except direct labor and direct materials.