When calculating the budgeted overhead rate, the numerator of the fraction is the actual
amount of the cost driver.
The payback model measures profitability as well as how quickly investment dollars
are recouped.
A static budget has multiple levels of activity.
In a period of inflation, LIFO results in a higher net income than FIFO.
The number of cubic feet is a logical cost driver for allocating depreciation expense of
heating equipment to cost objects.
Managers cannot eliminate discretionary fixed costs.
It is recommended that standard costs be used instead of actual costs for cost-based
transfer prices.
Some companies use hybrid costing, which blends the ideas from both job costing and
process costing.
Since managers are usually evaluated based on the operating results in one year, they do
not usually consider the long range impact of their decisions.
Most companies consider production volume variances to be beyond a manager’s
immediate control.
Owners’ equity represents the excess cash a company has made.
In a multinational setting, low transfer prices generally lead to low import duties.
When making a decision to replace some old equipment with new equipment, the book
value of the old equipment is irrelevant information.
Goal congruence exists when individuals aim at short-term goals and groups aim at
long-term organizational goals.
The value chain refers to the various stages through which a product passes.
The split-off point is the juncture in manufacturing where the joint products become
individually identifiable.
The chemical and glass industries normally use job costing.
Job-order costing can be used only in manufacturing environments.
In the net present value method, the only relevant operating cash flows are the ones that
differ among alternatives.
When the actual production volume exceeds the expected production volume, the
production volume variance is favorable.
Absorption-costing income is not affected by differences in expected volume and actual
volume.
XBRL is an integrated information system that supports all functional areas of a
business.
A key driver of performance is the culture within the organization that fosters continual
learning and growth.
The effectiveness of any budgeting system depends directly on the attitudes of top
management toward the budgeting system.
EVA uses after-tax numbers for operating income.
A company can increase the accuracy of its product cost information by converting
indirect costs to direct costs.
Goodwill is amortized for financial statement purposes.
The excess of revenues over expenses is called a net profit.
Cost of goods sold is the cost of the merchandise that a company acquires or produces
and then sells.
The absorption approach to the income statement emphasizes the distinction between
fixed and variable costs.
Multinational companies use transfer pricing to minimize their worldwide income
taxes, duties and tariffs.
A value-added cost is the cost of an activity that a company can eliminate without
affecting the product’s value to the customer.
In general, more costs are direct when a department is the cost object than when a
product or service is the cost object.
The keys to successful management control in any organization are proper training of
employees, motivation of employees and consistent monitoring of performance
measures.
Reports prepared by managerial accountants have a past orientation.
A corporation is not a separate legal entity from its owners.
Noncontrolling interests affect only the balance sheet of consolidated financial
statements.
When finished goods inventories decrease over an operating period, net income under
variable costing ________ net income under absorption costing.
A) exceeds
B) is less than
C) equals
D) not enough information to determine
In special order situations, unit costs are useful for predicting total ________. In special
order situations, unit costs are not useful for predicting total ________.
A) mixed costs; step costs
B) step costs; mixed costs
C) variable costs; fixed costs
D) fixed costs; variable costs
In a make-or-buy decision, which of the following is the fundamental question that is
asked in making the decision?
A) What is the difference in present costs between the two alternatives?
B) What is the difference in present revenues between the two alternatives?
C) What is the difference in future revenues between the two alternatives?
D) What is the difference in future costs between the two alternatives?
During the product development stage of the product life cycle, companies typically
experience ________.
A) revenues and no costs
B) costs and no revenues
C) both costs and revenues
D) neither costs nor revenues
Managers allocate the salaries of human resource personnel to a producing department.
The salaries are considered to be a(n) ________ for the producing department and a(n)
________ for the human resource department.
A) direct cost; indirect cost
B) indirect cost; direct cost
C) indirect cost; indirect cost
D) traceable cost; common cost
Managers’ incentives for performance are defined as the ________.
A) relationship between cost and perceived benefit
B) relationship between goal congruence and managerial effort
C) rewards for managerial effort and actions
D) influence of uncontrollable factors on a manager’s performance
Unallocated costs ________.
A) are not recorded in the cost accounting system
B) do not have cost drivers that can be used to relate the costs to cost objects
C) have a direct relationship to a cost object
D) have an identifiable relationship with a cost object
The balanced scorecard is a system that strikes a balance between ________ and
________ performance measures.
A) financial; nonfinancial
B) strategic; nonstrategic
C) innovative; tutorial
D) goal-oriented; strategic-oriented
What do liabilities and stockholders’ equity have in common?
A) They are both held by nonowners of the company.
B) They are both held by owners of the company.
C) They are both creditors.
D) They are both claims on a company’s assets
Which financial statement discloses the economic resources of the organization and the
claims against those resources?
A) income statement
B) statement of cash flows
C) statement of retained earnings
D) balance sheet
Which financial statement discloses the economic resources of the organization and the
claims against those resources?
A) income statement
B) statement of cash flows
C) statement of retained earnings
D) balance sheet
Indirect production costs do NOT include ________.
A) property taxes on factory building
B) rent expense on factory building
C) wages of security guards at corporate headquarters
D) wages of forklift truck operators in assembly area
________ is used for external reporting.
A) Absorption costing
B) Variable costing
C) Direct costing
D) The contribution margin approach
Latinovich Company has the following information available for the month of March:
Units Transferred- Direct Conversion
in Costs Materials Costs
Work-in-process inventory, March 1 240 $33,600 0 $18,000
*Percent complete 100% 0% 62.5%
Transferred-in during March 400
Completed in March 440
Work-in-process inventory, March 31 200
*Percent complete 100% 0% 80%
Costs added in March $52,000 $13,200 $48,600
The company uses the weighted-average method of process costing. What are the
equivalent units for March for conversion costs?
A) 400
B) 440
C) 600
D) 640
A(n) ________ is a review to determine whether the policies and procedures specified
by top management have been implemented by lower managers.
A) management audit
B) internal audit
C) internal control
D) internal accounting control
In the long run, the selling price of a product should cover ________.
A) all variable costs only
B) all variable costs and some fixed costs
C) all fixed costs only
D) all variable costs and all fixed costs
A grocery store manager is responsible for the operating performance of three grocery
stores in a small city. From the manager’s point of view, which of the following is NOT
a controllable cost?
A) cost of advertising for grocery stores sent to residents in local area
B) cost of advertising for grocery stores included in local newspaper
C) cost of flyers with grocery store coupons sent to local residents
D) insurance premium on three store buildings
Maroon Company is considering the purchase of equipment for $600,000. The
equipment will have a ten year life with no terminal salvage value. Straight-line
depreciation will be used for tax purposes. It is expected that the equipment will
generate annual sales of $400,000 for ten years and annual production costs, exclusive
of depreciation, of $300,000 for ten years. The tax rate is 20%. The required rate of
return is 12%. The present value of one for ten periods at 12% is 0.322. The present
value of an ordinary annuity of one for ten periods at 12% is 5.6502. What is the net
present value of the equipment?
A) $(80,182)
B) $32,822
C) $123,226
D) $191,028
Why are more organizations adopting activity-based costing systems?
A) Computer technology has increased the costs of developing and operating ABC
systems.
B) Indirect costs are more important in automated manufacturing environments.
C) Less competition.
D) Less diversity in product mix offered to customers.
________ is the delegation of decision-making power to segment managers of an
organization.
A) Goal congruence
B) Segment autonomy
C) Managerial effort
D) Segment contribution
Assume the sales price is $100 per unit and the variable cost is $75 per unit. Total fixed
costs are $150,000. Then the break-even volume in dollar sales is ________.
A) $1,500
B) $150,000
C) $200,000
D) $600,000
The high-low, visual-fit and least squares regression methods are more objective
methods to estimate cost functions than ________ and ________.
A) activity analysis; account analysis
B) activity analysis; engineering analysis
C) account analysis; engineering analysis
D) capacity analysis; activity analysis
The total of all production costs plus the total of all ________ costs equals the full cost
of a product.
A) selling
B) distribution
C) distribution and marketing
D) selling and administrative
There is no difference between variable-costing operating income and
absorption-costing operating income if there is no ________.
A) beginning inventory of finished goods
B) ending inventory of finished goods
C) variable overhead costs
D) change in finished goods inventory during the period
Wetzel Company has actual fixed overhead costs of $14,500. Fixed overhead costs
based on the flexible budget and the standard use of the cost driver are $14,400. Actual
variable overhead costs are $14,700. Flexible budget costs for variable overhead costs
are $15,000. What is the flexible-budget variance for fixed overhead costs?
A) $100 Favorable
B) $100 Unfavorable
C) $300 Favorable
D) $300 Unfavorable
To assess the ________ of estimates from regression analysis, we use the ________.
A) plausibility; standard error of coefficient
B) objectivity; standard error of coefficient
C) reliability; coefficient of determination
D) plausibility; coefficient of determination
The ________ report is a report that displays the financial impact of quality.
A) performance
B) cost of quality
C) cycle time
D) production control
When using process costing with transferred-in costs, the production report for
Department B has ________ columns for ________ different types of costs. Assume
Department B adds materials and conversion costs to units received from Department
A.
A) two; two
B) three; three
C) four; four
D) indeterminate; indeterminate
The manager of a(n) ________ responsibility center is responsible for the revenues,
costs and invested capital from the center.
A) profit
B) cost
C) investment
D) accounting
Under the traditional approach to cost allocation, the costs in each cost pool are
allocated to a product in proportion to the product’s usage of the ________.
A) available capacity
B) budgeted capacity
C) cost-allocation base
D) cost pool
In imperfect competition, if prices have little or no effect on sales volume, demand is
________.
A) stable
B) uniform
C) highly elastic
D) highly inelastic
A plant asset with a book value of $40,000 is sold for $10,000. The applicable tax rate
is 20%. The net after-tax cash effect of the sale is a ________.
A) $6,000 cash inflow
B) $10,000 cash inflow
C) $16,000 cash inflow
D) $16,000 cash outflow
Selected data for two divisions of the Royal Company are given below:
South North
Division Division
Net sales for year $4,000,000 $7,000,000
Average total assets for year $2,000,000 $2,000,000
Operating income before taxes for year $360,000 $420,000
Tax rate 20% 20%
Average after-tax cost of capital 10% 12%
Required:
A) Compute the ROI for each division. Income is defined as operating income after
taxes.
B) Based on the ROI, which division manager should receive a bonus? Bonuses are
awarded if ROI equals or exceeds 15 percent.
C) Compute the residual income for each division. Invested capital is defined as total
assets.
D) Based on the residual income, which division manager should receive a bonus?
Bonuses are awarded if residual income is greater than $100,000.
