Archives: Quiz

In a decentralized company, all the planning and controlling decisions are made by top management. The common factor in all quality management systems is the desire to improve the business’s performance by providing quality products or services. Answer: TRUE The […]

The Other Accounts DR columns of a purchases journal are used for recording merchandise inventory and office supplies. The inventory costing method affects the process of preparing the cost of goods sold budget. Answer: TRUE Tosh Company fabricates automobiles. Each […]

When the variable cost per unit increases, the total number of units required to break even also increases. In a manufacturing company, wages and benefits of assembly line workers are included in manufacturing overhead. Answer: FALSE The amount by which […]

Activity-based costing refines the cost allocation process even more than traditional allocation costing systems. Production cost reports prepared using the first-in, first-out (FIFO) method determine the cost of equivalent units of production by accounting for beginning inventory costs separately from […]

The three categories of period costs are direct materials, direct labor, and manufacturing overhead. The fundamental assumption of cost-volume-profit (CVP) analysis is that, in the long run, fixed costs become variable costs. Answer: FALSE When indirect materials are issued to […]

When using a periodic inventory system, the Merchandise Inventory DR column, in the purchases journal, is replaced with a column titled Cost of Goods Sold DR. In selecting machine usage as the primary cost driver for the Production Department, management […]

A just-in-time costing system does not use the Finished Goods Inventory account; instead, it combines the Finished Goods Inventory account with the Work-in-Process Inventory account. Sensitivity analysis allows managers to see how various business strategies will affect profit levels. Answer: […]

Management compares the costs of undertaking a quality improvement program to the costs of continuing without the quality improvement program. Generally, all transactions are recorded in a special journal as well as the general journal. Answer: FALSE Total fixed costs […]

Companies calculate the predetermined overhead rate at the beginning of an accounting period using the actual values of overhead costs. The cost per equivalent unit for transferred in units is calculated by dividing total transferred in costs by the equivalent […]

When finished products are sold, Sales Revenue is debited, and Cost of Goods Sold is credited. Most capital budgeting methods focus on accrual-based income. Answer: FALSE When using an activity-based costing system in service companies, the allocation of indirect costs […]

The balanced scorecard focuses only on lead indicators, because lag indicators are not important for performance evaluation. In making product mix decisions, when fixed costs are irrelevant, a company should emphasize the product with the highest contribution margin per unit […]

The number of equivalent units for direct materials and conversion costs must always be equal. The main difference between activity-based costing and traditional costing systems is that activity-based costing uses a separate allocation base for each activity. Answer: TRUE Absorption […]

Higher fixed costs increase the total number of units required to break even. Entries in the sales journal are posted to both the accounts receivable subsidiary ledger and the general ledger. Answer: TRUE A modification of the overhead allocation method […]

A company with different segments using different software configurations can easily combine budget data of different segments to create the master budget. Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars. Answer: TRUE When […]

Net present value is defined as the difference between the present value of the investment’s net cash inflows and the investment’s initial cost. The cost of goods sold is added to net sales revenue to determine gross profit. Answer: FALSE […]

Traditional costing systems employ multiple allocation rates for manufacturing overhead costs, but an activity-based costing system uses only one rate for allocating manufacturing overhead costs. Manufacturing companies produce their own products, but merchandising companies do not. Answer: TRUE Traditional costing […]

A responsibility accounting system evaluates the performance of each responsibility center and its manager. Entries in the cash payments journal are posted daily to the accounts payable subsidiary ledger and monthly to the general ledger. Answer: TRUE The cash payments […]

When using management by exception, managers investigate only those variances that are unfavorable. Absorption costing is used to analyze contribution margin. Answer: FALSE The capital expenditures budget is completed before the preparation of the cash budget. Answer: TRUE A standard […]

Financial statements prepared for investors and creditors often include forward-looking information because they make decisions based on a company’s future prospects. The Accounting Rate of Return method evaluates the lifetime return of an investment, whereas Return on Investment evaluates the […]

Managerial accounting is used in manufacturing and merchandising companies, but not in service companies. Under absorption costing, the more fixed manufacturing overhead in ending Finished Goods Inventory, the larger the Cost of Goods Sold. Answer: FALSE Both the sales volume […]

Repair and maintenance costs of vehicles used to deliver products to customers are product costs. Value engineering means reevaluating activities to reduce costs while still satisfying customer needs. Answer: TRUE Components of the master budget are the operating budget, the […]

The contribution margin for service companies is calculated by subtracting fixed costs from service revenue. Flexible budgets use budgeted (or standard) costs at the actual level of activity. Answer: TRUE Merchandising companies, like service companies, do not have a Cost […]

Under process costing, the costs incurred by each department are reported in a separate production cost report for each department. Quality costs can be hard to measure. Answer: TRUE A strategic budget will be as detailed as an operational budget. […]

A favorable direct materials cost variance occurs when the actual direct materials cost incurred is greater than the standard direct materials cost. Fixed cost per unit is assumed to be constant within a particular relevant range of activity. Answer: FALSE […]

The cost of goods manufactured is recorded with a debit to the Work-in-Process Inventory account and a credit to the Cost of Goods Manufactured account. The accounting rate of return is calculated by dividing the average annual operating income by […]

An increase in sales price per unit decreases the contribution margin per unit. Total manufacturing costs to account for during the year minus the ending Work-in-Process Inventory equals the cost of goods manufactured. Answer: TRUE If the sales price of […]

The Raw Materials Inventory account is debited when direct materials are issued for production. The payback method provides management with valuable information about the time period in which the cash invested will be recouped. Answer: TRUE Unlike merchandising companies, income […]

The most important part of a budgeting system is getting managers and employees to accept the budget. Variable costing considers direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead as product costs. Answer: FALSE In a standard costing […]

Direct material costs and direct labor costs cannot be easily traced to products. Therefore, they are allocated to products. Under process costing, the unit cost of the completed units is less than the unit cost of the incomplete units. Answer: […]

A production cost report helps managers identify the costs that can be reduced in the production process. A production cost report can help managers identify the most profitable products. Answer: TRUE In the first step in developing an activity-based costing […]

The direct materials cost and efficiency variances make up the total direct materials variance. The margin of safety can be used to evaluate a company’s plans for the future. Answer: TRUE Absorption costing considers fixed selling and administrative costs as […]

When more units are sold than produced, operating income is less under absorption costing. A depreciable asset’s original cost is relevant when considering whether to replace the asset. Answer: FALSE Absorption costing is required by the Generally Accepted Accounting Principles […]

Discounted cash flow methods incorporate compound interest by assuming that companies will reinvest future cash flows when they are received. The accounting rate of return method considers the time value of money. Answer: FALSE Management by exception directs the management’s […]

Direct costs and indirect costs can be easily traced directly to a cost object. In deciding whether to accept a special pricing order, management should only consider the quantitative data and disregard qualitative factors. Answer: FALSE For short-term pricing decisions, […]

Applying lean concepts in manufacturing balances increases in cost with quality improvement. The objective of a mixed-model line layout is to meet the demand for a variety of products and avoid building high inventories. Answer: TRUE The mixed-model line objective […]

You should visualize inventory as stacks of money sitting on forklifts, on shelves, and in trucks and planes while in transit. According to the economic aspect of the triple bottom line concept, the firm is required to compensate shareholders by […]

The “dollar days” inventory measurement may be used to focus management’s attention on where inventory is located. Florence Nightingale is credited with the development of the bar chart. Answer:FALSE She is credited as being the developer of the pie chart. […]

Shop-floor control (or production activity control) can involve reviewing the status and controlling the progress of orders as they are being worked on. An important opportunity in green sourcing is waste reduction opportunities. Answer:TRUE Green sourcing can also help drive […]

A manufacturing cell groups identical machines together to work on products having similar shapes and processing requirements. The optimal stocking decision in inventory management, when using marginal analysis, occurs at the point where the benefits derived from carrying the next […]

Decomposition of a time series means identifying and separating the time series data into its components. A tellers’ window in a bank is an example of a single-channel, multiphase queuing system. Answer: FALSE Multichannel, single phase. Tellers’ windows in a […]

The optimal strategy for innovative products is to use an efficient supply chain. The fixed-order-quantity inventory model is more appropriate for important items such as critical repair parts because there is closer monitoring and, therefore, quicker response to a potential […]

Raising senior management awareness of OSCM as a competitive weapon is not an important issue. The time-phased plan specifying how many and when the firm plans to build each end item is called the materials requirements plan (MRP.) Answer:FALSE The […]

In a CPM analysis, if you subtract the late finish from the early finish, the result is the activity’s slack time. A restriction in using linear regression is that it assumes that past data and future projections fall on or […]

In a price-break model of lot sizing, the lowest cost quantity is always feasible. A rate fence is a logical justification for different prices for what is essentially the same service. Answer:TRUE One issue is that pricing structures must appear […]

Theoretically, all schedules are feasible when finite loading is used. While small business organizations can seek to achieve the Baldrige National Quality Award, hospitals cannot. Answer: FALSE Up to 18 awards total may be given annually in these categories: manufacturing, […]

Value stream mapping is used to identify all of the value-adding as well as non-value-adding processes that materials are subjected to within a plant. It is critical that a sustainable strategy meet the needs of shareholders and employees. It is […]

One of the competitive dimensions that form the competitive position of a company when planning its strategies is cost. In a forecasting model using simple moving average, the shorter the time span used for calculating the moving average, the closer […]

In finite loading, no consideration is given directly to whether there is sufficient capacity at the resources required to complete the work, nor is the actual sequence of the work as done by each resource in the work center considered. […]

The ‘service blueprint” is a classification of services. A financially driven reason for outsourcing is that it can reduce costs through a lower cost structure. Answer:TRUE See Exhibit 16.5. In a price-break model of lot sizing, to find the lowest-cost […]

About 500 diagnostic-related groups have been developed for Medicare as part of the prospective payment system. A constant arrival rate is more common in productive systems than a variable arrival rate. Answer: FALSE In productive systems, the only arrivals that […]