Exam 3: Ch 4, 5, 6

Question 1

Job costing information is used:

A) to develop strategies
B) to make pricing decisions
C) for external financial reporting
D) All of these answers are correct

Answer 1

D) All of these answers are correct

Question 2

Product costing information is used by managers:
A) to make decisions and strategy
B) for planning and control
C) for cost management
D) All of these answers are correct.

Answer 2

D) All of these answers are correct.

Question 3

A ________ is a grouping of individual indirect cost items.
A) cost allocation base
B) cost assignment
C) cost pool
D) job-costing system

Answer 3

C) cost pool

Question 4

Each indirect-cost pool of a manufacturing firm:
A) utilizes a separate cost-allocation rate
B) is a subset of total indirect costs
C) relates to one cost object
D) All of these answers are correct.

Answer 4

D) All of these answers are correct.

Question 5

Direct costs
A) are anything for which a measurement of costs is desired.
B) are costs related to a particular cost object that can be traced to that cost object in an economically feasible (cost-effective) way
C) focus specifically on the costing needs of the CFO
D) provide all information for management decision needs

Answer 5

B) are costs related to a particular cost object that can be traced to that cost object in an economically feasible (cost-effective) way

Question 6

In a costing system:
A) cost tracing allocates indirect costs
B) cost allocation assigns direct costs
C) a cost-allocation base can be either financial or nonfinancial
D) a cost object should be a product and not a department or a geographic territory

Answer 6

C) a cost-allocation base can be either financial or nonfinancial

Question 7

Assigning direct costs to a cost object is called:
A) cost allocation
B) cost assignment
C) cost pooling
D) cost tracing

Answer 7

D) cost tracing

Question 8

________ is the process of distributing indirect costs to products.
A) Cost allocation
B) Job cost recording
C) Cost pooling
D) Cost tracing

Answer 8

A) Cost allocation

Question 9

A ________ links an indirect cost to a cost object.
A) cost-allocation base
B) cost pool
C) cost assignment
D) cost tracing

Answer 9

A) cost-allocation base

Question 10

Give three examples of costs that can be considered indirect for a product and direct for a department.

Answer 10

Supervision, engineering, and quality control

Question 11

________ costing is used by a business to price homogeneous or mass-produced products.
A) Actual
B) Job
C) Process
D) Traditional

Answer 11

C) Process

Question 12

________ costing is used by a business to price unique products for different jobs.
A) Actual
B) Job
C) Process
D) Traditional

Answer 12

B) Job

Question 13

Job costing:
A) can only be used in manufacturing
B) records the flow of costs for each customer
C) allocates an equal amount of cost to each unit made during a time period
D) is commonly used when each unit of output is identical

Answer 13

B) records the flow of costs for each customer

Question 14

Job-costing may only be used by:
A) service companies
B) merchandising companies
C) manufacturing companies
D) All of these may use job-costing.

Answer 14

D) All of these may use job-costing.

Question 15

Many large companies which have multiple production methods and processes have hybrid costing systems that are:
A) job-costing
B) actual costing
C) process costing
D) a mix of job-costing and process costing

Answer 15

D) a mix of job-costing and process costing

Question 16

Which of the following companies is most likely to use a process costing system.
A) a manufacturer of breakfast cereal
B) a manufacturer of large commercial aircraft
C) a custom jewelry manufacturer
D) a law firm

Answer 16

A) a manufacturer of breakfast cereal

Question 17

Describe job-costing and process-costing systems. Explain when it would be appropriate to use each.

Answer 17

Job costing accumulates costs for different jobs required by specific customers. Process costing computes and allocates an equal amount of cost to each product. Job costing is the logical choice when the production process has many distinct products or many heterogeneous jobs, while process costing is typically used when it is not necessary to keep separate cost records for individual jobs and the products are relatively homogeneous

Question 18

Which of the following are reasons for using longer periods, such as a year, to calculate indirect cost rates.
A) Numerator reason – costs can be “lumpy” in how they are incurred throughout the year
B) Denominator reason – demands on resources can be seasonal or otherwise inconsistent at different times during the year
C) Both A and B
D) Neither A nor B

Answer 18

C) Both A and B

Question 19

An example of a denominator reason for calculating annual indirect-cost rates includes:
A) higher heating bills in the winter
B) semi-annual insurance payments in March and September
C) higher levels of output demanded during the fall months
D) All of these answers are correct

Answer 19

C) higher levels of output demanded during the fall months

Question 20

A job that shows low profitability may be the result of:
A) wasting direct materials
B) inefficient direct manufacturing labor
C) underpricing the job
D) All of these answers are correct.

Answer 20

D) All of these answers are correct.

Question 21

For a given job the direct costs associated with the job are:
A) actual overhead
B) direct material
C) direct manufacturing labor
D) Both b and c are correct

Answer 21

D) Both b and c are correct

Question 22

The basic source document for direct manufacturing labor is the:
A) job-cost record
B) materials-requisition record
C) labor-time record
D) All of these answers are correct

Answer 22

C) labor-time record

Question 23

The budgeted indirect-cost rate for each cost pool is computed as
A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base.
B) budgeted annual quantity of cost allocation base divided by budgeted annual indirect costs.
C) actual annual indirect costs divided by budgeted annual quantity of cost allocation base.
D) budgeted annual indirect costs divided by budgeted actual quantity of cost allocation base.

Answer 23

A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base.

Question 24

If indirect-cost rates are calculated monthly, distortions might occur because of:
A) rental costs paid monthly
B) property tax payments made in July and December
C) routine monthly preventive-maintenance costs that benefit future months
D) Both B and C are correct.

Answer 24

B) property tax payments made in July and December

Question 25

An example of a numerator reason for calculating annual indirect-cost rates includes:
A) fewer production workdays in a month
B) payment of estimated taxes four times a year
C) higher snow-removal costs during the winter
D) Both B and C are correct

Answer 25

D) Both B and C are correct

Question 26

In a job-costing system, a manufacturing firm typically uses an indirect-cost rate to estimate the ________ allocated to a job.
A) direct materials
B) direct labor
C) manufacturing overhead costs
D) total costs

Answer 26

C) manufacturing overhead costs

Question 27

A job-cost sheet details the:
A) direct materials purchased and paid
B) direct labor costs incurred
C) indirect labor costs incurred
D) actual indirect overhead costs incurred

Answer 27

B) direct labor costs incurred

Question 28

(T/F) Companies typically wait for accurate information regarding actual manufacturing overhead costs before pricing a job

Answer 28

False

Question 29

(T/F) The budgeted indirect cost rate is the budgeted indirect costs divided by budgeted quantity of the cost allocation base.

Answer 29

True

Question 30

In a normal costing system, the Manufacturing Overhead Control account:
A) is increased by allocated manufacturing overhead
B) is credited with amounts transferred to Work-in-Process
C) is decreased by allocated manufacturing overhead
D) is debited with actual overhead costs incurred

Answer 30

D) is debited with actual overhead costs incurred

Question 31

The Materials Control account is increased when:
A) direct materials are purchased
B) indirect materials are purchased
C) materials are requisitioned for production
D) Both A and B are correct.

Answer 31

D) Both A and B are correct

Question 32

All of the following are true of the Work-in-Process Control account EXCEPT that:
A) it tracks all direct material purchases
B) the balance equals the sum of amounts from all in-process individual job-cost records
C) it is an asset account
D) it tracks job costs from beginning through completion

Answer 32

A) it tracks all direct material purchases

Question 33

All of the following are general ledger accounts EXCEPT:
A) the Salaries Payable Control account
B) the Prepaid Insurance Control account
C) the Accounts Receivable subsidiary account for Ruben Electric
D) the Advertising Costs account

Answer 33

C) the Accounts Receivable subsidiary account for Ruben Electric

Question 34

All of the following increase (are debited to) the Work-in-Process Control account EXCEPT:
A) actual plant insurance costs
B) direct materials
C) allocated manufacturing overhead costs
D) direct manufacturing labor

Answer 34

A) actual plant insurance costs

Question 35

When direct materials are requisitioned the ________ account is increased.
A) Manufacturing Overhead Control
B) Work-in-Process Control
C) Materials Control
D) Accounts Payable Control

Answer 35

B) Work-in-Process Control

Question 36

Payment of the factory rent increases the:
A) Work-in-Process Control account
B) Manufacturing Overhead Control account
C) Both A and B are correct.
D) None of these answers are correct.

Answer 36

B) Manufacturing Overhead

Question 37

All of the following are true of plant utility costs EXCEPT:
A) the source document is the utility bill
B) the cost increases the Manufacturing Overhead Control account
C) the cost increases the Work-in-Process Control account
D) it is an indirect cost

Answer 37

C) the cost increases the Work-in-Process Control account

Question 38

Actual (rather than allocated) manufacturing overhead costs are included in the:
A) Work-in-Process Control account
B) Finished Goods Control account
C) Manufacturing Overhead Control account
D) Both A and B are correct

Answer 38

C) Manufacturing Overhead Control account

Question 39

The ending balance in the Work-in-Process Control account represents the costs of all jobs that:
A) have not been completed
B) have been completed but not sold
C) have been completed and sold to customers
D) are reported on the income statement

Answer 39

A) have not been completed

Question 40

For externally reported inventory costs, the Work-in-Process Control account is increased (debited) by:
A) marketing costs
B) allocated plant utility costs
C) the purchase costs of direct and indirect materials
D) customer-service costs

Answer 40

B) allocated plant utility costs

Question 41

What is the appropriate journal entry if $100,000 of materials were purchased on account for the month of August?
A) Materials Control 100,000
Accounts Payable Control 100,000
B) Work-in-Process Control 100,000
Accounts Payable Control 100,000
C) Manufacturing Overhead Control 100,000
Accounts Receivable Control 100,000
D) Manufacturing Allocated 100,000
Accounts Receivable Control 100,000

Answer 41

A) Materials Control 100,000
Accounts Payable Control 100,000

Question 42

All of the following items are debited to Work-in-Process EXCEPT:
A) allocated manufacturing overhead
B) completed goods being transferred out of the plant
C) direct labor consumed
D) direct materials consumed

Answer 42

B) completed goods being transferred out of the plant

Question 43

What would be the appropriate journal entry if the following labor wages were incurred in a furniture manufacturing company?

Assembly workers	$20,000
Janitors	$10,000

A) Work-in-Process Control 30,000
Wages Payable Control 30,000
B) Work-in-Process Control 20,000
Manufacturing Overhead Control 10,000
Wages Payable Control 30,000
C) Manufacturing Overhead Control 30,000
Wages Payable Control 30,000
D) Wages Payable Control 30,000
Work-in-Process Control 30,000

Answer 43

B) Work-in-Process Control 20,000
Manufacturing Overhead Control 10,000
Wages Payable Control 30,000

Question 44

Manufacturing overhead costs incurred for the month are:

Utilities	$30,000
Depreciation on equipment	$25,000
Repairs	$20,000

Which is the correct journal entry assuming utilities and repairs were on account?
A) Manufacturing Overhead Control 75,000
Accounts Payable Control 50,000
Accumulated Depreciation Control 25,000
B) Manufacturing Overhead Control 75,000
Accounts Payable Control 75,000
C) Manufacturing Overhead Control 75,000
Accumulated Depreciation Control 75,000
D) Accumulated Depreciation Control 25,000
Accounts Payable Control 50,000
Manufacturing Overhead Control 75,000

Answer 44

A) Manufacturing Overhead Control 75,000
Accounts Payable Control 50,000
Accumulated Depreciation Control 25,000

Question 45

Which of the following statements regarding manufacturing overhead allocation is FALSE?
A) It includes all manufacturing costs that cannot be directly traced to a product or service.
B) The costs can be grouped in either a single indirect-cost pool or in multiple indirect-cost pools.
C) Total costs are unknown at the end of the accounting period.
D) Allocated amounts are debited to Work-in-Process

Answer 45

C) Total costs are unknown at the end of the accounting period.

Question 46

When a job is complete:
A) Work-in-Process Control is debited
B) Finished Goods Control is credited
C) the cost of the job is transferred to Manufacturing Overhead Control
D) actual direct materials, actual direct manufacturing labor, and allocated manufacturing overhead will comprise the total cost of the job

Answer 46

D) actual direct materials, actual direct manufacturing labor, and allocated manufacturing overhead will comprise the total cost of the job

Question 47

During an accounting period, job costs are computed on an ongoing basis by the use of:
A) actual allocation rates
B) budgeted indirect-cost rates
C) overallocated indirect-cost rates
D) underallocated indirect-cost rates

Answer 47

B) budgeted indirect-cost rates

Question 48

In a job-costing system, explain why it is necessary to apply indirect costs to production through the use of a manufacturing overhead cost allocation rate.

Answer 48

First, actual manufacturing overhead costs are not known until the end of year. To price and invoice jobs in a timely manner, annual manufacturing overhead costs need to be estimated and allocated to specific jobs during the accounting period. Secondly, manufacturing overhead costs are usually not incurred evenly throughout the year. The use of a manufacturing overhead cost allocation rate evenly distributes manufacturing overhead costs over the entire year

Question 49

Why does the manufacturing overhead control account (debit) need to equal the manufacturing overhead allocated account (credit)?

Answer 49

If these accounts do not equal, then overhead has either been overallocated or underallocated. Either situation means that the cost of the cost object has not been correctly estimated during the period. Evaluation of profitability will be incorrect depending on the materiality of the difference between the two accounts.

Question 50

What are three possible ways to dispose of underallocated or overallocated overhead costs at the end of a fiscal year? Briefly comment on the theoretical correctness or incorrectness of each method

Answer 50

One way to dispose of underallocated or overallocated overhead costs at the end of a fiscal year would be to prorate the underallocated or overallocated overhead costs to the work-in-process control account, the finished goods control account, and to the cost of goods sold account based on the relative amounts in each account. This is a theoretically correct method since it is reasonable to believe that the underallocated or overallocated overhead costs should attach themselves to the goods as they are produced. A second way to dispose of the underallocated or overallocated overhead costs at the end of a fiscal year would be to adjust the allocation rate based on the actual amounts and reallocate the overhead to completed jobs. This is also a theoretically correct method. A third way is to clear all underallocated or overallocated overhead to the cost of goods sold account. This is not theoretically valid but it is practical if the amount of underallocated or overallocated overhead is not material

Question 51

The spreading of underallocated or overallocated overhead among ending work-in-process, finished goods, and cost of goods sold is called:
A) the adjusted allocation rate approach
B) the proration approach
C) the write-off of cost of goods sold approach
D) None of these answers are correct

Answer 51

B) the proration approach

Question 52

The method that restates all overhead entries in the general ledger and subsidiary ledgers using actual cost rates rather than budgeted cost rates is called
A) the adjusted allocation rate approach
B) the proration approach
C) the write-off of cost of goods sold approach
D) None of these answers are correct.

Answer 52

A) the adjusted allocation rate approach

Question 53

When the allocated amount of indirect costs are less than the actual amount, indirect costs have been:
A) overabsorbed
B) underapplied
C) underallocated
D) Both underapplied and underallocated are correct.

Answer 53

D) Both underapplied and underallocated are correct.

Question 54

One reason indirect costs may be overapplied is because:
A) the actual allocation base quantity exceeds the budgeted quantity
B) budgeted indirect costs exceed actual indirect costs
C) requisitioned direct materials exceed budgeted material costs
D) Both A and B are correct

Answer 54

B) budgeted indirect costs exceed actual indirect costs

Question 55

The ________ approach adjusts individual job-cost records to account for underallocated or overallocated overhead.
A) adjusted allocation-rate
B) proration
C) write-off to cost of goods sold
D) Both A and B are correct

Answer 55

A) adjusted allocation-rate

Question 56

The adjusted allocation approach yields the benefits of:
A) timeliness and convenience of normal costing
B) allocation of of actual manufacturing overhead costs at the end of the year
C) Both a and b are correct.
D) Neither a nor b are correct

Answer 56

C) Both a and b are correct

Question 57

The approach often used when dealing with small amounts of underallocated or overallocated overhead is the ________ approach.
A) adjusted allocation-rate
B) proration
C) write-off to cost of goods sold
D) Both A and B are correct.

Answer 57

C) write-off to cost of goods sold

Question 58

The ________ approach carries the underallocated or overallocated amounts to overhead accounts in the following year.
A) adjusted allocation-rate
B) proration
C) write-off to cost of goods sold
D) None of these answers are correct

Answer 58

D) None of these answers are correct

Question 59

A company would use multiple cost-allocation bases:
A) if managers believed the benefits exceeded the additional costs of that costing system
B) because there is more than one way to allocate overhead
C) because this is a simpler approach than using one cost allocation base
D) if managers believe that using multiple cost-allocation bases is the only acceptable method

Answer 59

A) if managers believed the benefits exceeded the additional costs of that costing system

Question 60

If products are different, then for costing purposes:
A) an ABC costing system will yield more accurate cost numbers
B) a simple costing system should be used
C) a single indirect-cost rate should be used
D) none of the above

Answer 60

A) an ABC costing system will yield more accurate cost numbers

Question 61

Overcosting a particular product may result in:
A) loss of market share
B) pricing the product too low
C) operating efficiencies
D) understating total product costs

Answer 61

A) loss of market share

Question 62

Undercosting of a product is most likely to result from:
A) misallocating direct labor costs
B) underpricing the product
C) overcosting another product
D) overstating total product costs

Answer 62

C) overcosting another product

Question 63

A company produces three products; if one product is overcosted then:
A) one product is undercosted
B) one or two products are undercosted
C) two products are undercosted
D) no products are undercosted

Answer 63

B) one or two products are undercosted

Question 64

Misleading cost numbers are most likely the result of misallocating:
A) direct material costs
B) direct manufacturing labor costs
C) indirect costs
D) All of these answers are correct

Answer 64

C) indirect costs

Question 65

The use of a single indirect-cost rate is more likely to:
A) undercost high-volume simple products
B) undercost low-volume complex products
C) undercost lower-priced products
D) Both B and C are correct

Answer 65

B) undercost low-volume complex products

Question 66

Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called:
A) overcosting
B) undercosting
C) peanut-butter costing or product cost cross-subsidization
D) department costing

Answer 66

C) peanut-butter costing or product cost cross-subsidization

Question 67

Explain how a top-selling product may actually result in losses for the company.

Answer 67

If indirect costs are not properly allocated to the products, a product may appear to cost less than it actually does cost to produce. If the selling price is based on these lower costs, the selling price may actually be lower than the costs needed to produce the product resulting in losses for the company.

Question 68

Refining a cost system includes:
A) classifying as many costs as indirect costs as is feasible
B) creating as many cost pools as possible
C) identifying the activities involved in a process
D) seeking a lesser level of detail

Answer 68

C) identifying the activities involved in a process

Question 69

Greater indirect costs are associated with:
A) specialized engineering drawings
B) quality specifications and testing
C) inventoried materials and material control systems
D) All of these answers are correct

Answer 69

D) All of these answers are correct

Question 70

Design of an ABC system requires:
A) that the job bid process be redesigned
B) that a cause-and-effect relationship exists between resource costs and individual activities
C) an adjustment to product mix
D) Both B and C are correct

Answer 70

B) that a cause-and-effect relationship exists between resource costs and individual activities

Question 71

What are the factors that are causing many companies to refine their costing systems to obtain more accurate measures of the costs of their products?

Answer 71

The first cause is increasing product diversity. Companies are producing many more products than they used to, placing strains on more simple, older cost systems. A second cause is the overall increased in indirect costs and the relative decline of direct costs. The indirect nature of these costs requires allocation, and any inaccuracies in allocation of these costs become magnified as these indirect costs increase. A third cause would be advances in information technology that makes complex allocation of indirect costs less burdensome. Finally, increased competition from both national and international competitors has resulted in more pressure to reduce costs, as well as increasing the need for and value of information to support responses to these new threats

Question 72

ABC systems create:
A) one large cost pool
B) homogenous activity-related cost pools
C) activity-cost pools with a broad focus
D) activity-cost pools containing many direct costs

Answer 72

B) homogenous activity-related cost pools

Question 73

Logical cost allocation bases include:
A) cubic feet of packages moved to measure distribution activity
B) number of setups used to measure setup activity
C) number of design hours to measure designing activity
D) All of these answers are correct

Answer 73

D) All of these answers are correct

Question 74

ABC systems:
A) highlight the different levels of activities
B) limit cost drivers to units of output
C) allocate costs based on the overall level of activity
D) generally undercost complex products

Answer 74

A) highlight the different levels of activities

Question 75

A single indirect-cost rate may distort product costs because:
A) there is an assumption that all support activities affect all products
B) it recognizes specific activities that are required to produce a product
C) costs are not consistently recorded
D) it fails to measure the correct amount of total costs

Answer 75

A) there is an assumption that all support activities affect all products

Question 76

Traditional cost systems distort product costs because:
A) they do not know how to identify the appropriate units
B) competitive pricing is ignored
C) they emphasize financial accounting requirements
D) they apply average support costs to each unit of product

Answer 76

D) they apply average support costs to each unit of product

Question 77

Which of the following statements about activity-based costing is NOT true?
A) Activity-based costing is useful for allocating marketing and distribution costs.
B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.
C) Activity-based costing seeks to distinguish batch-level, product-sustaining, and facility-sustaining costs, especially when they are not proportionate to one another.
D) Activity-based costing differs from traditional costing systems in that products are not cross-subsidized.

Answer 77

B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.

Question 78

Activity-based costing (ABC) can eliminate cost distortions because ABC:
A) develops cost drivers that have a cause-and-effect relationship with the activities performed
B) establishes multiple cost pools
C) eliminates product variations
D) recognizes interactions between different departments in assigning support costs

Answer 78

A) develops cost drivers that have a cause-and-effect relationship with the activities performed

Question 79

Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into:
A) fewer indirect costs for each product line
B) decisions to drop product variations
C) a greater number of direct manufacturing labor cost allocation rates
D) greater overhead costs for each product line

Answer 79

D) greater overhead costs for each product line

Question 80

Activity-based costing is most likely to yield benefits for companies with all of the following characteristics EXCEPT:
A) numerous products that consume different amounts of resources
B) operations that remain fairly consistent
C) a highly competitive environment, where cost control is critical
D) accessible accounting and information systems expertise to maintain the system

Answer 80

B) operations that remain fairly consistent

Question 81

Each of the following statements is true EXCEPT:
A) traditional product costing systems seek to assign all manufacturing costs to products
B) ABC product costing systems seek to assign all manufacturing costs to products
C) traditional product costing systems are more refined than an ABC system
D) cost distortions occur when a mismatch (incorrect association) occurs between the way indirect costs are incurred and the basis for their assignment to individual products

Answer 81

C) traditional product costing systems are more refined than an ABC system

Question 82

Do activity-based costing systems always provide more accurate product costs than conventional cost systems? Why or why not?

Answer 82

No. Traditional systems contain smaller and fewer cost distortions when the traditional systems’ unit-level assignments and the alternative activity-cost drivers are relatively similar in proportion to each other. Still, the use of unit-level measures to assign indirect costs is more likely to undercost low-volume products and more complex products. Both traditional product-costing systems and ABC product-costing systems seek to assign all manufacturing costs to products. Cost distortions occur when a mismatch (incorrect association) occurs between the way support costs are incurred and the basis for their assignment to individual products.

Question 83

How can the need for a more refined costing system be identified?

Answer 83

Signs that there is a need for a more refined costing system include the following:
a. Significant amounts of indirect costs are allocated using only one or two cost pools.
b. All or most indirect costs are identified as output unit-level costs rather than batch-level, product-sustaining, or facility-sustaining activities.
c. Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity.
d. Products that a company is well suited to make and sell show small profits; whereas, products that a company is less suited to make and sell show large profits.
e. Operations staff have significant disagreements with the accounting staff about the costs of manufacturing and marketing products and services

Question 84

What is activity-based management and how can it be used to improve the profitability of a company?

Answer 84

Activity-based management is a method of management decision making that uses activity-based costing information to improve customer satisfaction and profitability. Some of the typical issues that require a refined costing system (such as ABC) are pricing and product mix decisions, cost reduction initiatives, streamlining of processes, and decisions that can lead to improved product design based on knowledge of detailed costs of the existing product lines. The gathering of timely and accurate information is one of the crucial steps in the decision-making process. A properly designed ABC system will be likely to efficiently provide detailed costing information to managers in companies that manufacture and distribute diverse product lines.

Question 85

A budget:
A) is the quantitative expression of a proposed plan of action by management
B) is an aid to coordinate what needs to be done
C) generally includes both financial and nonfinancial aspects of the plan
D) All of the above are correct

Answer 85

D) All of the above are correct

Question 86

Budgeting is used to help companies:
A) plan to better satisfy customers
B) anticipate potential problems
C) focus on opportunities
D) All of these answers are correct

Answer 86

D) All of these answers are correct

Question 87

Operating decisions primarily deal with:
A) the use of scarce resources
B) how to obtain funds to acquire resources
C) acquiring equipment and buildings
D) satisfying stockholders

Answer 87

A) the use of scarce resources

Question 88

Financing decisions primarily deal with:
A) the use of scarce resources
B) how to obtain funds to acquire resources
C) acquiring equipment and buildings
D) preparing financial statements for stockholders

Answer 88

B) how to obtain funds to acquire resources

Question 89

Budgeting provides all of the following EXCEPT:
A) a means to communicate the organization’s short-term goals to its members
B) support for the management functions of planning and coordination
C) a means to anticipate problems
D) an ethical framework for decision making

Answer 89

D) an ethical framework for decision making

Question 90

A budget can do all of the following EXCEPT:
A) promote coordination among subunits
B) determine actual profitability
C) motivate managers
D) motivate employees

Answer 90

B) determine actual profitability

Question 91

A budget should/can do all of the following EXCEPT:
A) be prepared by managers from different functional areas working independently of each other
B) be adjusted if new opportunities become available during the year
C) help management allocate limited resources
D) become the performance standard against which firms can compare the actual results

Answer 91

A) be prepared by managers from different functional areas working independently of each other

Question 92

A limitation of comparing a company’s performance against actual results of last year is that:
A) it includes adjustments for future conditions
B) feedback is no longer a possibility
C) past results can contain inefficiencies of the past year
D) the budgeting time period is set at one year

Answer 92

C) past results can contain inefficiencies of the past year

Question 93

Actual results should NOT be compared against past performance because:
A) past results may contain mistakes and substandard performance
B) past results will never happen again
C) past performance is an indicator of future performance
D) future conditions will be similar to past conditions

Answer 93

A) past results may contain mistakes and substandard performance

Question 94

A company’s actual performance should be compared against budgeted amounts for the same accounting period so that:
A) adjustments for future conditions can be included
B) no feedback is possible
C) inefficiencies of the past year can be included
D) a rolling budget can be implemented

Answer 94

A) adjustments for future conditions can be included

Question 95

Operating budgets include all of the following EXCEPT:
A) the revenues budget
B) the budgeted income statement
C) the administrative costs budget
D) the budgeted balance sheet

Answer 95

D) the budgeted balance sheet

Question 96

Operating budgets include the:
A) budgeted balance sheet
B) budgeted income statement
C) capital expenditures budget
D) budgeted statement of cash flows

Answer 96

B) budgeted income statement

Question 97

The operating budget process generally concludes with the preparation of the:
A) production budget
B) distribution budget
C) research and development budget
D) budgeted income statement

Answer 97

D) budgeted income statement

Question 98

Which budget is NOT necessary to prepare the budgeted balance sheet?
A) cash budget
B) budgeted statement of cash flows
C) budgeted income statement
D) revenues budget

Answer 98

B) budgeted statement of cash flows

Question 99

Financial budgets include the all of the following EXCEPT:
A) capital expenditures budget
B) budgeted income statement
C) budgeted balance sheet
D) budgeted statement of cash flows

Answer 99

B) budgeted income statement

Question 100

The sales forecast should be primarily based on:
A) statistical analysis.
B) input from sales managers and sales representatives
C) production capacity
D) input from the board of directors

Answer 100

B) input from sales managers and sales representatives

Question 101

The sales forecast is influenced by:
A) advertising and sales promotions
B) competition
C) general economic conditions
D) All of these answers are correct

Answer 101

D) All of these answers are correct

Question 102

A sales forecast is:
A) often the outcome of elaborate information gathering and discussions among sales managers
B) developed primarily to prepare next year’s marketing campaign
C) solely based on sales of the previous year
D) a summary of product costs that influence pricing decisions

Answer 102

A) often the outcome of elaborate information gathering and discussions among sales managers

Question 103

The revenues budget identifies:
A) expected cash flows for each product
B) actual sales from last year for each product
C) the expected level of sales for the company
D) the variance of sales from actual for each product

Answer 103

C) the expected level of sales for the company

Question 104

The number of units in the sales budget and the production budget may differ because of a change in:
A) finished goods inventory levels
B) overhead charges
C) direct material inventory levels
D) sales returns and allowances

Answer 104

A) finished goods inventory levels

Question 105

Production is primarily based on:
A) projected inventory levels
B) the revenues budget
C) the administrative costs budget
D) the capital expenditures budget

Answer 105

B) the revenues budget

Question 106

Budgeted production equals:
A) beginning finished goods inventory + budgeted unit sales - targeted ending finished goods inventory
B) targeted ending finished goods inventory + beginning finished goods inventory - budgeted unit sales
C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory
D) budgeted unit sales + targeted ending finished goods inventory + beginning finished goods inventory

Answer 106

C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory

Question 107

The direct materials usage budget is based on:
A) the units to be produced during a period
B) budgeted sales dollars
C) the predetermined factory overhead rate
D) the amount of labor-hours worked

Answer 107

A) the units to be produced during a period

Question 108

Direct material purchases equal:
A) production needs
B) production needs plus target ending inventories
C) production needs plus beginning inventories
D) production needs plus target ending inventories less beginning inventories

Answer 108

D) production needs plus target ending inventories less beginning inventories

Question 109

Individual budgeted amounts included in the manufacturing overhead costs budget are based on input from:
A) operating personnel
B) costs incurred in prior years
C) cost changes expected in the future
D) All of these answers are correct.

Answer 109

D) All of these answers are correct.

Question 110

The manufacturing overhead costs budget includes budgeted amounts for:
A) indirect materials
B) indirect manufacturing labor
C) depreciation on factory equipment
D) All of these answers are correct

Answer 110

D) All of these answers are correct

Question 111

Budgeted manufacturing overhead costs include all types of factory expenses EXCEPT:
A) fixed items such as depreciation of manufacturing machinery
B) variable items such as plant supplies
C) indirect labor such as the salary of the plant supervisor
D) direct labor and direct materials

Answer 111

D) direct labor and direct materials

Question 112

The cost of goods sold budget requires all of the following budgets EXCEPT:
A) direct material cost budget
B) manufacturing overhead cost budget
C) distribution cost budget
D) direct manufacturing labor cost budget

Answer 112

C) distribution cost budget