Midterm MBA 516 Flashcards
1) Managers use management accounting information to ________.
A) help external users such as investors, banks, regulators, and suppliers
B) communicate, develop, and implement strategies
C) communicate a firm’s financial position to investors, banks, regulators, and other outside parties
D) ensure that financial statements are consistent with the SEC rules
B) communicate, develop, and implement strategies
2) The primary user of management accounting information is a(n) ________.
A) the controller
B) a shareholder evaluating a stock investment
C) bondholder
D) external regulator
A) the controller
3) Financial accounting provides the primary source of information for ________.
A) decision making in the finishing department
B) improving customer service
C) preparing the income statement for shareholders
D) planning next year’s operating budget
C) preparing the income statement for shareholders
4) Which of the following statements refers to management accounting information?
A) There are no regulations governing the reports.
B) The reports are generally delayed and historical.
C) The audience tends to be stockholders, creditors, and tax authorities.
D) It primarily measures manager’s compensation on reported financial results.
A) There are no regulations governing the reports.
5) Which of the following groups would be least likely to receive detailed management accounting reports? A) stockholders B) sales managers C) production supervisors D) distribution managers
A) stockholders
True or False:
Financial accounting is broader in scope than management accounting.
False: Management accounting is broader in scope than financial accounting.
True or False:
Cost accounting measures and reports short-term, long-term, financial, and non-financial information.
True
True or False:
Management accounting has to strictly follow the rules of generally accepted accounting principles for the purposes of measurement and reporting.
False: Internal measures and reports do not have to follow GAAP.
True or False:
Cost management not only helps reducing costs but also improving customer satisfaction and the quality of a firm’s products.
True
Describe management accounting and financial accounting.
Management accounting provides information to internal decision makers of the business such as top executives, managers, sales representatives, and production supervisors. Its purpose is to help managers predict and evaluate future results. Reports are generated often and usually broken down into smaller reporting divisions such as department or product line. There are no rules to be complied with since these reports are for internal use only. Management accounting embraces more extensively such topics as the development and implementation of strategies and policies, budgeting, special studies and forecasts, influence on employee behavior, and nonfinancial as well as financial information.
Financial accounting, by contrast, provides information to external decision makers such as investors and creditors. Its purpose is to present a fair picture of the financial condition of the company. Reports are generated quarterly or annually and report on the company as a whole. The financial statements must comply with GAAP (generally accepted accounting principles). A CPA audits, or verifies, that GAAP is being followed.
11) Which of the following is not a concern for management accountants in formulating a strategy?
A) identifying the most important warehouse location for the distribution of goods
B) substituting products that exist in the marketplace
C) strategizing compliance with GAAP (Generally Accepted Accounting Principles)
D) maintaining adequate fixed assets available to implement the strategy
C) strategizing compliance with GAAP (Generally Accepted Accounting Principles)
This is more of a concern of financial accountants than of management accountants.
12) In designing strategy, a company must match its opportunities in the marketplace with ________.
A) environment friendly goals
B) its resources and capabilities
C) branding opportunities
D) the requirements of credit rating agencies
B) its resources and capabilities
13) Which of the following statements about customer value is true?
A) Customer value is shown in a corporation’s balance sheet.
B) Creating value for customers is an important part of planning and implementing strategy.
C) Customer value is the only focus that helps managers to formulate strategies.
D) Customer value is lost with increase in costs of the product.
B) Creating value for customers is an important part of planning and implementing strategy.
14) The key to a company’s success is creating value for customers while differentiating itself from its competitors.
True
15) The key to a company’s success is always to be the low cost producer in a particular industry.
False:
The low cost producer in a particular industry will not necessarily be successful.
True or False:
16) Management accountants should have little or no role in deciding on a company’s strategy.
False:
Management accountants should play a significant role in deciding on a company’s strategy.
17) Place the four business functions in the order they appear along the value chain:
Customer service
Design
Marketing
Production
A) Customer Service, Design, Production, Marketing
B) Customer Service, Marketing, Production, Design
C) Design, Production, Marketing, Customer Service
D) Design, Customer Service, Production, Marketing
C) Design, Production, Marketing, Customer Service
18) \_\_\_\_\_\_\_\_ is an after-sale support provided to customers. A) Distribution B) Customer service C) Production D) Marketing
B) Customer service
19) Management accounting information helps managers calculate a target cost for a product ________.
A) by subtracting from the target price the operating income per unit of product that the company wants to earn
B) by subtracting from the target price the net income per unit of product that the company wants to earn
C) by subtracting profit margin per unit from the target price of product that the company wants to earn
D) by adding the operating income per unit and the contribution margin per unit
A) by subtracting from the target price the operating income per unit of product that the company wants to earn
20) Customer response time involves ________.
A) the speed it takes a customer to respond to an advertisement and place an order
B) the speed at which an organization responds to customer requests
C) the speed it takes to develop a new product
D) the speed it takes an organization to develop a Total Quality Management (TQM) program
B) the speed at which an organization responds to customer requests
True or False:
21) Technological innovation has led to shorter product-life cycles and increased the need to bring new products to market more rapidly.
True
True or False:
22) Distribution refers to promoting and selling products or services to customers or prospective customers.
False:
Marketing refers to promoting and selling products or services to customers or prospective customers.
True or False:
23) Managers track the costs incurred in each value-chain category is to reduce costs and to improve efficiency.
True
True or False:
24) Managers rely on management accounting information to evaluate alternative investment and R&D decisions.
True
Production is the ________.
A) generation of, and experimentation with, ideas related to new products, services, or processes
B) processing orders and shipping products or services to customers
C) acquisition, coordination, and assembly of resources to produce a product or deliver a service
D) detailed planning and engineering of products, services, or processes
C) acquisition, coordination, and assembly of resources to produce a product or deliver a service
26) The most important planning tool is a \_\_\_\_\_\_\_\_. A) performance evaluation report B) fishbone diagram C) control chart D) budget
D) budget
27) Which of the following is true of planning?
A) It makes predictions about the future.
B) It assumes the functional hierarchy of any business is linear.
C) It improves the quality of products.
D) It evaluates customer feedback
A) It makes predictions about the future.
True or False:
28) To take advantage of changing market opportunities, the annual budget should be strictly enforced.
False:
To take advantage of changing market opportunities, the annual budget should be updated to reflect those changes.
True or False:
29) The process of preparing a budget forces coordination and communication throughout the company.
True
30) In order, list the five steps in the decision-making process.
- Identify the problem and uncertainties
- Obtain information
- Make predictions about the future
- Make decisions by choosing among alternatives
- Implement the decision, evaluate performance, and learn
31) Explain how a budget can help management implement strategy.
A budget is a planning tool, a quantitative expression of a plan of action. First, actions are planned and then they are communicated to the entire organization. The budget also helps with coordination.
32) The scenario that resources should be spent if the expected benefits to the company exceed the expected costs describes ________.
A) cost-benefit approach
B) behavioral and technical considerations
C) balanced scorecard
D) different costs for different purposes
A) cost-benefit approach
33) \_\_\_\_\_\_\_\_ includes providing financial information for reports to managers and shareholders, and overseeing the overall operations of the accounting system. A) Risk management B) Treasury management C) Controllership D) Strategic planning
C) Controllership
34) Which of the following is a function of a controller? A) operations administration B) controlling the stock price C) communication with the shareholders D) interest-rate risk management
A) operations administration
35) Which of the following differentiates confidentiality and credibility under the Standards of Ethical Conduct?
A) Credibility deals with refraining from activities that would prejudice carrying duties ethically, while confidentiality deals with communicating information fairly and objectively.
B) Confidentiality deals with refraining from the usage of critical information for unethical or illegal advantage, while credibility ensures disclosing the relevant information that would help the intended user’s understanding.
C) Credibility deals with refraining from the usage of critical information for unethical or illegal advantage, while confidentiality ensures disclosing the relevant information that would help the user’s understanding.
B) Confidentiality deals with refraining from the usage of critical information for unethical or illegal advantage, while credibility ensures disclosing the relevant information that would help the intended user’s understanding.
True or False:
36) Performing professional duties in accordance with relevant laws, regulations, and technical standards is a competent responsibility.
True
37) Comparing budgeted costs to actual costs helps managers to improve \_\_\_\_\_\_\_\_. A) coordination B) control C) implementation D) planning
B) control
38) Cost assignment ________.
A) includes future and arbitrary costs
B) encompasses allocating indirect costs to a cost object
C) is the same as cost accumulation
D) is the difference between budgeted and actual costs
B) encompasses allocating indirect costs to a cost object
True or False:
39) Accountants define a cost as a resource to be sacrificed to achieve a specific objective.
True
40) The general term used to identify both the tracing and the allocation of accumulated costs to a cost object is \_\_\_\_\_\_\_\_. A) cost accumulation B) cost assignment C) cost tracing D) conversion costing
B) cost assignment
41) The determination of a cost as either direct or indirect depends upon the \_\_\_\_\_\_\_\_. A) accounting standards B) tax system chosen C) inventory valuation D) cost object chosen
D) cost object chosen
42) A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of indirect cost for the soccer equipment line is the ________.
A) material used to make the soccer balls
B) labor to shape the leather used to make the soccer ball
C) material used to manufacture the soccer studs
D) salary paid to plant supervisor
D) salary paid to plant supervisor
43) Which of the following is true of indirect costs?
A) Indirect costs are always considered sunk costs.
B) All indirect costs are included in cost of goods sold.
C) Indirect costs always vary in direct proportion to the level of production.
D) Indirect costs cannot be traced to a particular cost object in an economically feasible way.
D) Indirect costs cannot be traced to a particular cost object in an economically feasible way.
44) Which of the following statements is true of direct costs?
A) A direct cost of one cost object is a true sense of the budgeted costs.
B) All variable costs are direct costs.
C) A direct cost of one cost object can be an indirect cost of another cost object.
D) All fixed costs are direct costs.
C) A direct cost of one cost object can be an indirect cost of another cost object.
True or False:
45) The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object.
False:
The smaller the amount of a cost the less likely it is economically feasible to trace it to a particular cost object.
True or False:
46) A direct cost of one cost object can be an indirect cost of another cost object.
True
47) What are the differences between direct costs and indirect costs? Give an example of each.
Direct costs are costs that can be traced easily to the product manufactured or the service rendered. Examples of direct costs include direct materials and direct manufacturing labor used in a product. Indirect costs cannot be easily identified with individual products or services rendered, and are usually assigned using allocation formulas. In a plant that manufactures multiple products, examples of indirect costs include the plant supervisor’s salary and the cost of machines used to produce more than one type of product.
48) Cost behavior refers to ________.
A) how costs react to a change in the level of activity
B) whether a cost is incurred in a manufacturing, merchandising, or service company
C) classifying costs as either perpetual or period costs
D) whether a particular expense is expensed in the same or the following period
A) how costs react to a change in the level of activity
49) Fixed costs depend on the \_\_\_\_\_\_\_\_. A) amount of resources used B) amount of unchanged costs for a given time period C) volume of production D) total number of units sold
B) amount of unchanged costs for a given time period
50) Which one of the following is a variable cost for an insurance company? A) rent of the building B) CEO's salary C) electricity expenses D) property taxes
C) electricity expenses
51) The most likely cost driver of distribution costs is the \_\_\_\_\_\_\_\_. A) number of parts within the product B) number of miles driven C) number of products manufactured D) number of production hours
B) number of miles driven
True or False:
52) A fixed cost is fixed only in relation to a given wide range of total activity or volume and only for a given
time span, usually a particular budget period.
True
True or False:
53) Variable costs per unit vary with the level of production or sales volume.
False:
Variable costs per unit are constant with the level of production or sales volume.
True or False:
54) An appropriate cost driver for shipping costs might be the number of units shipped.
True
55) In making product mix and pricing decisions, managers should focus on \_\_\_\_\_\_\_\_. A) total costs B) unit costs C) variable costs D) manufacturing costs
A) total costs
56) Genosis Metals provided the following information for last month:
Sales $20,000 Variable costs 8,000 Fixed costs 4,000 Operating income $8,000
If sales reduce to half the amount in the next month, what is the projected operating income? A) $0 B) $4,000 C) $2,000 D) $6,000
C) $2,000
Explanation: C) Projected operating income = ($20,000 × 0.5) − ($8,000 × 0.5) − $4,000 = $2,000
Manufacturing costs $135,000
Units manufactured 15,000
Units sold 12,000 units sold for $15 per unit
Beginning inventory $3,500
57) What is the average manufacturing cost per unit? A) $11.00 B) $9.00 C) $11.25 D) $11
B) $9.00
Explanation: B) $135,000 / 15,000 = $9.00
Manufacturing costs $135,000
Units manufactured 15,000
Units sold 12,000 units sold for $15 per unit
Beginning inventory $3,500
58) What is the manufacturing cost for the ending inventory? A) $42,500 B) $25,500 C) $18,500 D) $30,500
D) $30,500
Explanation: D) Ending inventory = $3,500 + (15,000 * $9) - (12,000 * $9) = $30,500
True or False:
59) Although unit costs are regularly used in financial reports and for making product mix and pricing decisions, managers should think in terms of total costs rather than unit costs for making decisions.
True
True or False:
60) A unit cost is also called an average cost.
True
61) \_\_\_\_\_\_\_\_ sector companies purchase materials and components and convert them into finished goods. A) Merchandising B) Service C) Manufacturing D) Professional
C) Manufacturing
62) The following information pertains to Alleigh’s Mannequins:
Manufacturing costs $1,500,000 Units manufactured 30,000 Units sold 29,500 units sold for $85 per unit Beginning inventory 0 units
What is the amount of gross margin? A) $1,475,000 B) $1,500,000 C) $2,507,500 D) $1,032,500
D) $1,032,500
Explanation: D) 29,500 × ($85 - ($1,500,000 / $30,000)) = $1,032,500
63) Service-sector companies report ________.
A) work-in-process inventory, and finished goods inventory accounts
B) only finished goods inventory
C) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
D) no inventory accounts
D) no inventory accounts
64) For a manufacturing company, direct labor costs may be included in ________.
A) direct materials inventory only
B) merchandise inventory only
C) both work-in-process inventory and finished goods inventory
D) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
C) both work-in-process inventory and finished goods inventory
65) For a manufacturing-sector company, the cost of factory depreciation is classified as a \_\_\_\_\_\_\_\_. A) direct material cost B) direct manufacturing labor cost C) manufacturing overhead cost D) period cost
C) manufacturing overhead cost
66) Manufacturing overhead costs in an automobile manufacturing plant most likely include ________.
A) labor costs of the painting department
B) indirect material costs such as lubricants
C) leather seat costs
D) tire costs
B) indirect material costs such as lubricants
67) Direct materials inventory would normally include ________.
A) direct materials in stock and awaiting use in the manufacturing process
B) goods partially worked on but not yet fully completed
C) goods fully completed but not yet sold
D) products in their original form intended to be sold without changing their basic form
A) direct materials in stock and awaiting use in the manufacturing process
68) Inventoriable costs ________.
A) include administrative and marketing costs
B) are expensed in the accounting period in which the products are sold
C) are expensed in the accounting period in which the products are manufactured
D) are also referred to as nonmanufacturing costs
B) are expensed in the accounting period in which the products are sold
69) Inventoriable costs are expensed on the income statement ________.
A) when direct materials for the product are purchased
B) after the products are manufactured
C) when the products are sold
D) when the goods move from work-in process to finished goods account
C) when the products are sold
70) A plant manufactures several different products. The wages of the plant supervisor can be classified as a(n) \_\_\_\_\_\_\_\_. A) direct cost B) inventoriable cost C) variable cost D) period cost
B) inventoriable cost
71) For an automobile manufacturer, period costs include the cost of \_\_\_\_\_\_\_\_. A) the dashboard B) labor used for assembly C) advertising D) assembly-line equipment
C) advertising
The East Company manufactures several different products. Unit costs associated with Product ORD210 are as follows:
Direct materials $54 Direct manufacturing labor 8 Variable manufacturing overhead 11 Fixed manufacturing overhead 25 Sales commissions (2% of sales) 5 Administrative salaries 12 Total $115
72) What are the inventoriable costs per unit associated with Product ORD210? A) $73 B) $87 C) $98 D) $62
C) $98
Explanation: C) $54 + $8 + $11 + $25 = $98
Direct materials $54 Direct manufacturing labor 8 Variable manufacturing overhead 11 Fixed manufacturing overhead 25 Sales commissions (2% of sales) 5 Administrative salaries 12 Total $115 73) What are the period costs per unit associated with Product ORD203? A) $5 B) $12 C) $17 D) $18
C) $17
Explanation: C) $5 + 12 = $17
True or False:
74) Indirect manufacturing costs include the compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way.
False:
Direct manufacturing labor costs include the compensation of all manufacturing labor that can be traced to the cost object.
75) A company reported revenues of $375,000, cost of goods sold of $118,000, selling expenses of $11,000, and total operating costs of $70,000. Gross margin for the year is \_\_\_\_\_\_\_\_. A) $257,000 B) $246,000 C) $176,000 D) $252,000
A) $257,000
Explanation: A) $375,000 − $118,000 = $257,000
76) Product costs used for external reporting generally include ________.
A) manufacturing costs only
B) design costs plus manufacturing costs
C) all costs incurred along the value chain
D) research and development costs along with production costs
A) manufacturing costs only
77) Which of the following is true of cost-volume-profit analysis?
A) The theory assumes that all costs are variable.
B) The theory assumes that units manufactured equal units sold.
C) The theory states that total variable costs remain the same over a relevant range.
D) The theory states that total costs remain the same over the relevant range.
B) The theory assumes that units manufactured equal units sold.
78) Contribution margin equals \_\_\_\_\_\_\_\_. A) revenues minus period costs B) revenues minus product costs C) revenues minus variable costs D) revenues minus fixed costs
C) revenues minus variable costs
Bell Company sells several products. Information of average revenue and costs is as follows:
Selling price per unit $28.50 Variable costs per unit: Direct material $5.25 Direct manufacturing labor $1.15 Manufacturing overhead $0.25 Selling costs $1.85 Annual fixed costs $110,000 The company sells 10,000 units.
79) The contribution margin per unit is \_\_\_\_\_\_\_\_. A) $15 B) $20 C) $22 D) $125
B) $20
Explanation: B) Contribution margin per unit = $28.50 − $5.25 − $1.15 −$0.25 − $1.85 = $20.00
80) Winnz sells 8,000 units resulting in $100,000 of sales revenue, $35,000 of variable costs, and $45,000 of fixed costs. The contribution margin percentage is \_\_\_\_\_\_\_\_. A) 66.67% B) 65.0% C) 37.5% D) 75.0%
B) 65.0%
Explanation: B) ($100,000 − $35,000) / $100,000 = 65%
81) Which of the following is the mathematical expression of contribution margin ratio?
A) Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)
B) Contribution margin ratio = Contribution margin percentage × Fixed costs (in dollars)
C) Contribution margin ratio = Contribution margin percentage × Variable costs (in dollars)
D) Contribution margin ratio = Contribution margin percentage × Operating leverage
A) Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)
True or False:
82) The three methods used to study CVP analysis are graphical method, contribution method, and equation method.
True
83) Breakeven point in units is ________.
A) total costs divided by profit margin per unit
B) contribution margin per unit divided by total cost per unit
C) fixed costs divided by contribution margin per unit
D) the sum of fixed and variable costs divided by contribution margin per unit
C) fixed costs divided by contribution margin per unit
84) What is the breakeven point in units, assuming a product's selling price is $100, fixed costs are $16,000, unit variable costs are $20, and operating income is $5,200? A) 100 units B) 300 units C) 400 units D) 200 units
D) 200 units
Explanation: D) Unit contribution margin = $100 − $20 = $80.
Breakeven point in units = $16,000 / $80 = 200 units
85) Frazer Corp sells several products. Information of average revenue and costs is as follows:
Selling price per unit $28.50 Variable costs per unit: Direct material $5.50 Direct manufacturing labor $1.15 Manufacturing overhead $0.85 Selling costs $2.50 Annual fixed costs $125,000
What is the operating income earned if the company sells 15,000 units? A) $162,750 B) $150,000 C) $148,500 D) $152,500
D) $152,500
Explanation: D) Contribution = $28.5 - $5.50 − $1.15 − $0.85 - $2.50 = $18.50 × 15,000 = $277,500
Operating income = $277,500 - $125,000 = $152,500
86) Pearl Lights sells only pearl necklaces. 8,000 units were sold resulting in $240,000 of sales revenue, $60,000 of variable costs, and $40,000 of fixed costs. The breakeven point in total sales dollars is \_\_\_\_\_\_\_\_. A) $40,000 B) $53,334 C) $100,000 D) $58,334
B) $53,334
Explanation: B) $40,000 / ($240,000 - 60,000) / 240,000 = $53,334 (rounded up)
87) Lights Manufacturing produces a single product that sells for $125. Variable costs per unit equal $50. The company expects total fixed costs to be $75,000 for the next month at the projected sales level of 1,000 units. What is the current breakeven point in terms of number of units? A) 800 units B) 1033 units C) 667 units D) 1,000 units
D) 1,000 units
Explanation: D) $75,000/($125 − $50) = 1,000 units
True or False:
88) Breakeven point is the point at which operating income is zero.
True
True or False:
89) If variable costs per unit increase, then the breakeven point will decrease.
False
Explanation: If variable costs per unit increase, then the breakeven point will also increase.
90) The margin of safety is the difference between ________.
A) budgeted expenses and breakeven expenses
B) budgeted revenues and breakeven revenues
C) actual operating income and budgeted operating income
D) actual sales margin and budgeted sales margin
B) budgeted revenues and breakeven revenues
True or False:
91) Sensitivity analysis helps to evaluate the risk associated with decisions.
True
92) If the contribution margin ratio is 0.40, targeted operating income is $50,000, and fixed costs are $75,000, then sales volume in dollars is \_\_\_\_\_\_\_\_. A) $250,000 B) $312,500 C) $275,000 D) $350,000
B) $312,500
Explanation: B) X = (50,000 + 75,000)/.4; X = $312,500
93) When a greater proportion of costs are fixed costs, then ________.
A) a small increase in sales results in a small decrease in operating income
B) when demand is low the risk of loss is high
C) a decrease in sales reduces the total fixed cost per unit
D) a decrease in sales reduces the cost per unit
B) when demand is low the risk of loss is high
True or False:
94) Companies with a greater proportion of direct costs have a greater risk of loss than companies with a greater proportion of indirect costs.
False
Companies with a greater proportion of fixed costs have a greater risk of loss than companies with a greater proportion of variable costs.
True or False:
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.
True or False:
96) The risk-return tradeoff across alternative cost structures can be measured as operating leverage.
True
97) Dolph and Evan started the DE Restaurant in 20X3. They rented a building, bought equipment, and hired two employees to work full time at a fixed monthly salary. Utilities and other operating charges remain fairly constant during each month.
During the past two years, the business has grown with average sales increasing 1% a month. This situation pleases both Dolph and Evan, but they do not understand how sales can grow by 1% a month while profits are increasing at an even faster pace. They are afraid that one day they will wake up to increasing sales but decreasing profits.
Required:
Explain why the profits have increased at a faster rate than sales. Use the terms variable costs and fixed costs in your response.
The fixed cost per meal served is decreasing with increased volumes, while the contribution margin per meal served remains constant. Apparently, most of the restaurant’s expenses are fixed. Therefore, as sales pass the breakeven point the profit will increase even faster because the fixed expenses have already been covered. This allows sales to cover only variable expenses before contributing to the profit margin, thereby causing it to increase at a faster rate.
98) A \_\_\_\_\_\_\_\_ is anything for which a measurement of costs is desired. A) cost-allocation base B) cost pool C) cost object D) cost-application base
C) cost object
99) A \_\_\_\_\_\_\_\_ is a grouping of individual indirect cost items. A) cost allocation base B) cost assignment C) cost pool D) job-costing system
C) cost pool
100) 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
C) a cost-allocation base can be either financial or nonfinancial
101) Assigning direct costs to a cost object is called \_\_\_\_\_\_\_\_. A) cost allocation B) cost assignment C) cost pooling D) cost tracing
D) cost tracing
102) The cost allocation base ________.
A) is a grouping of individual indirect cost items
B) are costs related to a particular cost object that cannot be traced to that cost object in an economically feasible way
C) is anything for which a measurement of costs is desired
D) is a systematic way to link an indirect cost or group of indirect costs to cost objects
D) is a systematic way to link an indirect cost or group of indirect costs to cost objects
103) Job costing ________.
A) cannot be used by the service industry
B) records the flow of costs for each product or service
C) allocates an equal amount of cost to each unit made during a time period
D) is used when each unit of output is identical
B) records the flow of costs for each product or service
True or False:
104) Normal costing is a method of job costing that allocates an indirect cost based on the actual indirect-cost rate times the actual quantity of the cost-allocation base.
False:
Actual costing is a method of job costing that allocates an indirect cost based on the actual indirect-cost rate times the actual quantity of the cost-allocation base.
True or False:
105) Fox Studios, the movie production house, uses process costing to estimate costs.
False
True or False:
106) The actual indirect-cost rate is calculated by dividing actual total indirect costs by the budgeted total quantity of the cost-allocation base.
False
Actual indirect cost rate = Actual annual indirect costs / Actual annual quantity of the cost-allocation base.
107) Bernard Company's budgeted manufacturing overhead is $3,300,000. Overhead is allocated on the basis of direct labor hours. The budgeted direct labor hours for the period are 60,000. What is the manufacturing overhead rate? A) $47.00 B) $56.00 C) $75.00 D) $55.00
D) $55.00
Explanation: D) $3,300,000/60,000 hours = $55.00
108) 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
C) manufacturing overhead costs
True or False:
109) Indirect manufacturing costs should be allocated equally to each job.
False:
Not equally to each job, but according to the use of indirect resources by individual jobs.
True or False:
110) To smooth fluctuating levels of output, separate indirect-cost rates should be calculated for each month.
False:
To smooth seasonal costs and fluctuating levels of output, indirect-cost rates should be calculated on an annual basis.
111) The budgeted indirect-cost rate is calculated \_\_\_\_\_\_\_\_. A) at the beginning of the year B) during the year C) at the end of each quarter D) at the end of the year
A) at the beginning of the year
112) When using a normal costing system, manufacturing overhead is allocated using the \_\_\_\_\_\_\_\_ manufacturing overhead rate and the \_\_\_\_\_\_\_\_ quantity of the allocation base. A) budgeted; actual B) budgeted; budgeted C) actual; budgeted D) actual; actual
A) budgeted; actual
True or False:
113) Actual costing helps managers get information earlier and take corrective measures to improve labor efficiency.
False:
Normal costing helps managers get information earlier and take corrective measures to improve labor efficiency.
T or F
114) Normal costing assigns indirect costs based on an actual indirect-cost rate.
False
Normal costing assigns indirect costs based on a budgeted rate.
115) Look at practice exam
Too long
116) The Materials Control account is increased when ________.
A) direct materials are purchased
B) indirect materials are sold
C) materials are requisitioned for production
D) materials are converted to finished goods
A) direct materials are purchased
117) 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
B) Work-in-Process Control
118) 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
B) budgeted indirect-cost rates
T or F
119) The ending balance in Work-in-Process Control represents the total costs of all jobs that have NOT yet been completed.
True
120) 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) the weighted-average cost approach
B) the proration approach
121) When the allocated amount of indirect costs are less than the actual amount, indirect costs have been \_\_\_\_\_\_\_\_. A) within budget B) overallocated C) underallocated D) perfectly allocated
C) underallocated
122) Look at the practice exam
too long
T or F
123) The manufacturing overhead control accounts are closed or become zero at the end of each year.
True
T or F
124) It is appropriate for service organizations such as public accounting firms to use job costing.
True
Accounting firms, law firms, and other firms in the service industry can use Job costing.
