Test 1 Flashcards
1
Q
Management accounting information focuses on external reporting. (True or False)
A
False
2
Q
The key to a company’s success is creating value for customers while differentiating itself from its competitors
(True or False).
A
True
3
Q
Financial accounting is broader in scope than management accounting.
A
False
4
Q
Companies generally follow one of two basic strategies: 1) providing a quality product or service at low prices, or 2) offering a unique product or service often priced higher than competing products.
A
True
5
Q
The key to a company’s success is always to be the low cost producer in a particular industry.
A
False
6
Q
The balance sheet, income statement, and statement of cash flows are used for financial accounting, but not for management accounting.
A
False - used for both
7
Q
The value chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers.
A
False - not value chain that’s supply chain!
8
Q
The supply chain always occurs within a single organization.
A
False
9
Q
For strategic decisions, scorekeeping is the most prominent role played by management accounting
A
False
10
Q
Management accountants often are simultaneously doing problem-solving, scorekeeping, and attention-directing activities.
A
True
11
Q
Management accounting:
a. focuses on estimating future revenues, costs, and other measures to forecast activities and their results b. provides information about the company as a whole c. reports information that has occurred in the past that is verifiable and reliable d. provides information that is generally available only on a quarterly or annual basis
A
a
12
Q
- Financial accounting:
a. focuses on the future and includes activities such as preparing next year’s operating budget
b. must comply with GAAP (generally accepted accounting principles)
c. reports include detailed information on the various operating segments of the business such as product lines or departments
d. is prepared for the use of department heads and other employees
A
b
13
Q
- The value chain is the sequence of business functions in which:
a. value is deducted from the products or services of an organization
b. value is proportionately added to the products or services of an organization
c. usefulness is added to the products or services of an organization
d. products and services are evaluated with respect to their value to the supply chain
A
c
14
Q
- Which of the following is NOT a force that shapes an organization’s profit potential?
a. Competitors
b. Equivalent products
c. Bargaining power of input suppliers
d. None of the above.
A
d
15
Q
- __________ is an organization’s ability to offer products or services that are perceived by its customers as being superior and unique relative to those of its competitors.
a. Strategy
b. The balanced scorecard
c. Cost leadership
d. Product differentiation
A
d
16
Q
- __________ is an organization’s ability to achieve low costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control.
a. Strategy
b. Product differentiation
c. Cost leadership
d. The balanced scorecard
A
c
17
Q
- The person MOST likely to use ONLY financial accounting information is a:
a. factory shift supervisor
b. vice president of operations
c. current shareholder
d. department manager
A
c
18
Q
- The person MOST likely to use management accounting information is a(n):
a. banker evaluating a credit application
b. shareholder evaluating a stock investment
c. governmental taxing authority
d. assembly department supervisor
A
d
19
Q
- Cost accounting provides all of the following EXCEPT:
a. information for management accounting and financial accounting
b. pricing information from marketing studies
c. financial information regarding the cost of acquiring resources
d. nonfinancial information regarding the cost of operational efficiencies
A
b - can be under management accounting but not cost accounting.
20
Q
- Management accounting includes:
a. implementing strategies
b. developing budgets
c. preparing special studies and forecasts
d. All of these answers are correct.
A
d
21
Q
Actual costs and budgeted costs are two different terms referring to the same thing.
A
False
22
Q
Accountants define a cost as a resource to be sacrificed to achieve a specific objective.
A
True
23
Q
A cost object is always either a product or a service.
A
False - can be customer project activity
24
Q
The same cost may be direct for one cost object and indirect for another cost object.
A
True
25
Assigning direct costs poses more problems than assigning indirect costs.
False
26
Improvements in information-gathering technologies are making it possible to trace more costs as direct.
True
27
The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP).
False
28
Misallocated indirect costs may lead to promoting products that are not profitable.
True
29
Fixed costs depend on the resources used, not the resources acquired.
False - (resources acquired!)
30
The variable cost per unit of a product should stay the same throughout the relevant range of production.
True
31
Merchandising companies only hold two types of inventories: merchandise inventory, and direct material.
False
32
Cost of goods sold refers to the products brought to completion, whether they were started before or during the current accounting period.
False - current accounting period only.
Cost of goods manufactured....would make this correct
33
Manufacturing sector firms normally hold three types of inventory: direct materials inventory, work-in-process inventory, and finished goods inventory.
True
34
Inventoriable costs are reported as an asset when incurred and expensed on the income statement when the product is sold.
True
35
Operating income is sales revenue minus cost of goods manufactured.
False
| Cost of goods sold would make it correct
36
All manufacturing costs are inventoriable costs.
True
37
All costs reported on the income statement of a service-sector company are period costs.
True
38
Conversion costs include all direct manufacturing costs.
False
39
If a worker is paid for 8 hours, but is idle for 1 of those 8 hours, the 1 hour of idle time would be considered a component of direct labor.
False
40
Period costs are never included as part of inventory.
True
41
Inventory of a manufacturing firm includes goods partially worked on but not yet fully completed called work-in-progress..
True
42
The wages of a plant supervisor would be classified as a period cost.
False
43
Depreciation can be classified as either an inventoriable cost or a period cost, depending on what is being depreciated.
True
44
For external reporting, GAAP requires that costs be classified as either variable or fixed.
False
45
Management accountants help managers identify which information is relevant to a particular decision.
True
46
To perform cost-volume-profit analysis, a company must be able to separate costs into fixed and
variable components.
True
47
Cost-volume-profit analysis may be used for multi-product analysis when the proportion of
different products remains constant.
True
48
Total revenues less total fixed costs equal the contribution margin.
False.
| Contribution margin = total revenues - total variable costs
49
If the selling price per unit of a product is $30, variable costs per unit are $20, and total fixed
costs are $10,000 and a company sells 5,000 units, operating income would be $40,000.
True
operating income = CM - Fixed costs.
=((30x5,000)-(20x5000))-10,000
=40,000
50
If the selling price per unit is $20 and the contribution margin percentage is 30%, then the
variable cost per unit must be $6.
False
CM% = CM/selling price
0.3=CM/20
CM=6
CM=selling price - variable cost
6 = 20 - VC
VC = 14
51
The selling price per unit is $30, variable cost per unit $20, and fixed cost per unit is $3. When
this company operates above the breakeven point, the sale of one more unit will increase net
income by $10.
True
| The sale of one more unit will increase net income by $10, ($30 – $20 = $10).
52
Breakeven point is not a good planning tool since the goal of business is to make a profit.
False.
Breakeven point is an important planning tool that helps managers determine volume of sales/production needed to be profitable.
53
If planned net income is $21,000 and the tax rate is 30%, then planned operating income would
be $30,000.
True
If planned net income is $21,000 and the tax rate is 30%, then planned operating income would be $30,000, [$21,000 / (1.0 – .3) = $30,000]
54
An increase in the tax rate will increase the breakeven point.
False.
| A change in the tax rate will not change the breakeven point.
55
At the breakeven point of 200 units, variable costs total $400 and fixed costs total $600. The
201st unit sold will contribute ___________ to profits.
a. $1
b. $2
c. $3
d. $5
c.
$1,000 – $400 – $600 = 0;
Sales ($1,000 / 200) – Variable costs ($400 / 200) = $3 CM
56
The Tessmer Company has fixed costs of $400,000 and variable costs are 75% of the selling
price. To realize profits of $100,000 from sales of 500,000 units, the selling price per unit:
a. must be $1.00
b. must be $1.33
c. must be $4.00
d. is indeterminable
c
| ($400,000 + $100,000) / .25 = $2,000,000 in sales / 500,000 units = $4 per unit
57
If the contribution-margin ratio is 0.30, targeted net income is $76,800, and targeted sales
volume in dollars is $480,000, then total fixed costs are:
a. $23,000
b. $44,160
c. $67,200
d. $144,000
c
| (X + $76,800)/0.30 = $480,000; X = $67,200
58
If a company has a degree of operating leverage of 2.0 and sales increase by 25%, then
a. total variable costs will increase by 50%
b. total variable costs will not change
c. profit will increase by 20%
d. profit will increase by 50%
d
59
If a company would like to increase its degree of operating leverage it should:
a. increase its inventories relative to its receivables
b. increase its receivables relative to its inventories
c. increase its variable costs relative to its fixed costs
d. increase its fixed costs relative to its variable costs
d
60
The margin of safety is the difference between:
a. budgeted expenses and breakeven expenses
b. actual contribution margin and budgeted contribution margin
c. actual operating income and budgeted operating income
d. budgeted revenues and breakeven revenues
d
61
In multiproduct situations, when sales mix shifts toward the product with the highest
contribution margin then:
a. total revenues will decrease
b. breakeven quantity will increase
c. total contribution margin will decrease
d. operating income will increase
d
62
Assuming a constant mix of 3 units of Small for every 1 unit of Large.
Small (sales $20, VC $14)
Large (sales $30, VC $18)
Total fixed costs $48,000
The breakeven point in units would be:
a. 400 units of Small and 1,200 units of Large
b. 1,200 units of Small and 400 units of Large
c. 1,600 units of Small and 4,800 units of Large
d. 4,800 units of Small and 1,600 units of Large
d
63
Helping Hands is a nonprofit organization that supplies electric fans during the summer for
individuals in need. Fixed costs are $200,000. The fans cost $20.00 each. The organization has
a budgeted appropriation of $480,000. How many people can receive a fan during the summer?
a. 24,000 people
b. 20,000 people
c. 15,000 people
d. 14,000 people
d
$480,000 – $20N – $200,000 = 0;
$280,000 = $20N;
N = 14,000 people
64
To determine contribution margin use:
a. only variable manufacturing costs
b. only fixed manufacturing costs
c. both variable and fixed manufacturing costs
d. both variable manufacturing costs and variable nonmanufacturing costs
d
65
Direct costs are traced the same way for actual costing and normal costing. (True/False)
True
66
Normal costing assigns indirect costs based on an actual indirect-cost rate. (True/False)
False
67
For normal costing, even though the budgeted indirect-cost rate is based on estimates, indirect costs are allocated to products based on actual levels of the cost-allocation base. (True/False)
True
68
The Finished Goods Control account consists of actual manufacturing overhead costs rather than allocated manufacturing overhead costs. (True/False)
False
69
When actual indirect costs exceed allocated indirect costs, indirect costs have been underapplied. (True/False)
True
| Indirect costs have been underapplied when actual indirect costs exceed allocated indirect costs.
70
Proration spreads the underallocated or overallocated overhead only to ending work in process and finished goods inventory. (True/False)
True
71
If a company undercosts one of its products, then it will overcost at least one of its other products. (True/False)
True
72
Companies that undercost products will most likely lose market share. (True/False)
False
73
Traditional systems are likely to undercost complex products with lower production volume. (True/False)
True
74
Simply because activity-based costing systems employ more activity-cost drivers, they provide more accurate product costs than traditional systems. (True/False)
False
75
```
Refer to Rhett company handout.
The budgeted indirect-cost driver rate for the Machining Department based on the number of machine-hours in that department is:
a. $5 per machine-hour
b. $10 per machine-hour
c. $20 per machine-hour
d. None of these answers is correct.
```
a
| $200,000 / 40,000 mh = $5
76
```
Refer to Rhett company handout.
A single indirect-cost rate based on direct manufacturing labor-hours for the entire plant is:
a. $ 8 per direct labor-hour
b. $10 per direct labor-hour
c. $20 per direct labor-hour
d. None of these answers is correct.
```
b
| $600,000 / 60,000 dlh = $10
77
The simplest approach to dealing with 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.
c
78
Sara employs 25 professional cleaners.
Budgeted costs total $900,000 of which $525,000 are direct costs.
Budgeted indirect costs are $375,000 and actual indirect costs were $396,900.
Budgeted professional labor-hours are 500,000 and actual hours were 504,000.
What is the budgeted direct cost-allocation rate?
a. $1.80 per hour
b. $1.7857 per hour
c. $0.75 per hour
d. $1.05 per hour
d
| $525,000 / 500,000 = $1.05
79
It is usually difficult to find good cause-and-effect relationships between __________ and a cost allocation base.
a. unit-level costs
b. batch-level costs
c. product-sustaining costs
d. facility-sustaining costs
d
80
```
Refer to Tiger Pride handout
Under the revised ABC system, the activity-cost driver rate for the supervision activity is:
a. $2.58
b. $2.40
c. $2.24
d. $1.16
```
d
81
```
Refer to Tiger Pride handout
Under the revised ABC system, supervision costs allocated to Sweatshirts will be:
a. $48,720
b. $100,800
c. $100,920
d. None of these answers are correct.
```
a
| $100,920 / (45,000 dlh + 42,000 dlh) = $1.16 per dlh x 42,000 dlh = $48,720
82
```
Refer to Tiger Pride handout
Under the revised ABC system, total overhead costs allocated to Sweatshirts will be:
a. $ 48,720
b. $ 76,720
c. $224,920
d. None of these answers are correct.
```
b
$124,000 / (60,000 inspections + 17,500 inspections) = $1.60 per inspection x 17,500 =
$28,000 plus $100,920 / (45,000 dlh + 42,000 dlh) = $1.16 per dlh x 42,000 dlh = $48,720; $28,000 + $48,720 = $76,720
83
```
Refer to Tiger Pride handout.
Under the revised ABC system, overhead costs per unit for the Sweatshirts will be:
a. $1.39 per unit
b. $1.60 per unit
c. $2.19 per unit
d. $2.47 per unit
```
c
| $76,720 / 35,000 sweatshirts = $2.19
84
```
Refer to Tiger Pride handout
Using an ABC system, next year’s estimates show manufacturing overhead costs will total $228,300 for 52,000 T-shirts. If all other T-shirt costs and sales prices remain the same, the profitability that can be expected is
a. $5.41 per t-shirt.
b. $4.39 per t-shirt.
c. ($0.81) per t-shirt.
d. $1.11 per t-shirt.
```
d
| [52,000 ($16 – $2.00 – $4.50 – $4.00)] – $228,300 = $57,700 / 52,000 = $1.11
85
A company with sales of $100,000, variable costs of $70,000, and fixed costs of $50,000 will reach its breakeven point if sales are increased by $20,000.
False.
| $50,000 / 0.30 = $166,667 of total sales are needed to break even.
86
Breakeven point is that quantity of output where total revenues equal total costs.
True
87
In the graph method of CVP analysis, the breakeven point is the quantity of units sold for which the total revenues line crosses the X-axis.
True
88
A profit-volume graph shows the impact on operating income from changes in the output level
True
89
If the selling price per unit of a product is $50, variable costs per unit are $40, and total fixed costs are $50,000, a company must sell 6,000 units to make a target operating income of $10,000.
True
90
Margin of safety measures the difference between budgeted revenues and breakeven revenues.
True
91
If contribution margin decreases by $1 per unit, then operating profits will increase by $1 per unit.
False.
| If contribution margin decreases by $1 per unit, then operating profits will decrease by $1 per unit.
92
If variable costs per unit increase, then the breakeven point will decrease.
False.
| If variable costs per unit increase, then the breakeven point will also increase.
93
A planned decrease in selling price would be expected to cause an increase in the quantity sold.
true
94
Companies with a greater proportion of fixed costs have a greater risk of loss than companies with a greater proportion of variable costs.
True
95
If a company increases fixed costs, then the breakeven point will be lower.
False.
| If a company increases fixed costs, then the breakeven point will be higher.
96
Companies that are substituting fixed costs for variable costs receive a greater per unit return above the breakeven point.
True
97
A company with a high degree of operating leverage is at lesser risk during downturns in the economy.
False.
| A company with a high degree of operating leverage is at greater risk during downturns in the economy.
98
If a company has a degree of operating leverage of 2.0, that means a 20% increase in sales will result in a 40% increase in variable costs.
False.
If a company has a degree of operating leverage of 2.0, that means a 20% increase in sales will result in a 40% increase in operating income.
99
When a company has at least some fixed costs, the degree of operating leverage is different at different levels of sales.
True
100
To calculate the breakeven point in a mult-product situation, one must assume that the sales mix of the various products remains constant.
True
101
There is no unique breakeven point when there are multiple cost drivers.
True
102
When there are multiple cost drivers the simple CVP formula of Q = (FC + OI)/CMU can still be used.
False.
| When there are multiple cost drivers the simple CVP formula no longer applies
103
Contribution margin and gross margin are terms that can be used interchangeably.
False.
Contribution margin and gross margin refer to different amounts. Revenues – all variable costs = contribution margin; Revenues – COGS = gross margin
104
Which of the following items is NOT an assumption of CVP analysis?
a. Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
b. When graphed, total costs curve upward.
c. The unit-selling price is known and constant.
d. All revenues and costs can be added and compared without taking into account the time value of money.
b
105
Which of the following items is NOT an assumption of CVP analysis?
a. Costs may be separated into separate fixed and variable components.
b. Total revenues and total costs are linear in relation to output units.
c. Unit selling price, unit variable costs, and unit fixed costs are known and remain constant.
d. Proportion of different products will remain constant when multiple products are sold
c
106
The contribution income statement:
a. reports gross margin
b. is allowed for external reporting to shareholders
c. categorizes costs as either direct or indirect
d. can be used to predict future profits at different levels of activity
d
107
Contribution margin equals:
a. revenues minus period costs
b. revenues minus product costs
c. revenues minus variable costs d. revenues minus fixed costs
c
108
The selling price per unit less the variable cost per unit is the:
a. fixed cost per unit
b. gross margin
c. margin of safety
d. contribution margin per unit
d
