True/false Flashcards
1) When expressed on a per unit basis, fixed costs can mislead decision makers into thinking of them as variable costs.
⊚ true
⊚ false
true
2) To estimate what the profit will be at various levels of sales volume, multiply the number of units to be sold above or below the break-even point by the unit contribution margin.
⊚ true
⊚ false
True
3) The total volume in sales dollars that would be required to attain a given target profit is determined by dividing the target profit by the contribution margin ratio.
⊚ true
⊚ false
False
4) Two companies with the same margin of safety in dollars will also have the same total contribution margin.
⊚ true
⊚ false
False
5) Fawn Company’s margin of safety is $90,000. If the company’s sales drop by $80,000, it will still have positive net operating income.
⊚ true
⊚ false
True
6) The margin of safety is the amount by which sales can decrease before losses are incurred by the company.
⊚ true
⊚ false
True
7) The engineering approach to the analysis of mixed costs involves a detailed statistical analysis of cost behavior using methods that minimize the squared errors.
⊚ true
⊚ false
False
8) A major advantage of the high-low method of cost estimation is that it omits all data from the analysis other than the lowest and highest costs.
⊚ true
⊚ false
False
9) The highest and lowest costs are always used to analyze a mixed cost under the high-low method.
⊚ true
⊚ false
False
10) The high and low points used in the high-low method tend to be unusual and therefore the cost formula for the mixed cost may not accurately represent all of the data.
⊚ true
⊚ false
True
11) Managers can use a variety of methods to estimate the fixed and variable components of a mixed cost. In account analysis, an account is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves.
⊚ true
⊚ false
True
12) Variable manufacturing overhead costs are treated as product costs under both absorption and variable costing.
⊚ true
⊚ false
True
13) Under variable costing, fixed manufacturing overhead is treated as a product cost.
⊚ true
⊚ false
False
14) Under variable costing, an increase in fixed manufacturing overhead will affect the unit product cost.
⊚ true
⊚ false
False
15) Absorption costing treats all fixed costs as product costs.
⊚ true
⊚ false
False
16) Under the absorption costing method, a company can increase profits simply by increasing the number of units produced.
⊚ true
⊚ false
True
17) Under absorption costing, a portion of fixed manufacturing overhead cost is released from inventory when production volume exceeds sales volume.
⊚ true
⊚ false
False
18) When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs deferred in inventory under absorption costing should be deducted from variable costing net operating income to arrive at the absorption costing net operating income.
⊚ true
⊚ false
False
19) Assuming the LIFO inventory flow assumption, when production exceeds sales for the period, absorption costing net operating income will exceed variable costing net operating income.
True
False
True
20) Segment margin is sales less variable expenses less traceable fixed expenses.
⊚ true
⊚ false
True
21) The salary paid to a store manager is not a traceable fixed expense of the store.
⊚ true
⊚ false
False
22) Allocating common fixed costs to segments on segmented income statements increases the usefulness of such statements.
⊚ true
⊚ false
False
23) Segmented statements for internal use should not be prepared using the contribution format.
⊚ true
⊚ false
False
24) Common fixed expenses should not be allocated to business segments when performing break-even calculations and making decisions.
⊚ true
⊚ false
True
25) Budgets are used for the distinct purposes of planning and profit.
⊚ true
⊚ false
False
26) Control involves developing goals and preparing various budgets to achieve those goals.
⊚ true
⊚ false
False
27) The cash budget is the starting point in preparing the master budget.
⊚ true
⊚ false
False
28) The production budget is typically prepared prior to the sales budget.
⊚ true
⊚ false
False
29) The selling and administrative budget is typically prepared before the cash budget.
⊚ true
⊚ false
True
30) One of the weaknesses of budgets is that they are of little value in uncovering potential bottlenecks.
⊚ true
⊚ false
False
31) Cash collections in a schedule of cash collections typically consist of collections on sales made to customers in prior periods plus collections on sales made in the current budget period.
⊚ true
⊚ false
True
32) In a production budget, if the number of units in finished goods inventory at the end of the period is less than the number of units in finished goods inventory at the beginning of the period, then the expected number of units sold is less than the number of units to be produced during the period.
⊚ true
⊚ false
False
33) When preparing a direct materials budget, beginning inventory for raw materials should be added to production needs, and desired ending inventory should be subtracted to determine the amount of raw materials to be purchased.
⊚ true
⊚ false
False
34) The direct labor budget shows the direct labor-hours required to satisfy the production budget.
⊚ true
⊚ false
True
35) The manufacturing overhead budget lists all costs of production other than direct materials and direct labor.
⊚ true
⊚ false
True
36) The budgeted variable selling and administrative expense is calculated by multiplying the budgeted unit sales by the variable selling and administrative expense per unit.
⊚ true
⊚ false
True
