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71 Cards in this Set
- Front
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Which statement is true about activity based costing? 1) It uses a single basis of allocation. 2) It can be used only in a process cost system. 3)It focuses on activities performed to produce a product. 4) It focuses on units of production. |
It focuses on activities performed to produce a product |
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Activity-based costing 1) Is the initial phase of converting to a just-in-time operating environment. 2) can be used only in a job order costing system. 3) uses direct labor as its primary cost driver. 4) is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers. |
is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers. |
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Which of the following is the third step in applying an activity-based costing system? 1) Identify the appropriate cost driver. 2) Assign manufacturing overhead costs for each cost pool to the products. 3) Compute the overhead rate for each cost driver. 4) Identify and classify the major activities involved in the manufacture of each product. |
Computing the overhead rate for each cost driver |
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How many steps are involved in activity based costing? 2 4 5 3 |
4 |
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Which of the following should not be included as part of the cost pool of machine setups? 1) Salaries of those supervising machine operators 2) Supplies needed in changing machines from one production setting to another. 3) Depreciation on machines and parts used for different setups. 4) Cost of the accounts payable supervisor's salary |
4) Supervisors Salary |
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An activity that adds costs to the product but does not increase its market value is a? non-value-added activity. value-added activity. cost driver. cost-benefit activity. |
Non-value-added activity |
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What is the primary benefit of activity-based costing? Arbitrary allocations of overhead costs More cost pools More accurate product costing The cost of implementation |
More accurate product costing |
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Under just-in-time processing 1) Raw materials are received just in time for use in production 2) subassembly parts are completed just in time for use in assembling finished goods. 3) finished goods are completed just in time to sold 4) all of these |
4) all of these |
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The primary objective of just-in-time processing is to accumulate overhead in activity cost pools. identify relevant activity cost drivers. identify value-added activities. eliminate or reduce all manufacturing inventories. |
Eliminate or reduce all manufacturing inventories |
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Which of the following statements is false concerning the use of ABC in service industries? 1) In most service industries, a large portion of overhead costs are company-wide costs. 2) When using ABC for service industries, special methods must be used to identify cost pools and cost drivers due to the unique nature of the services offered. 3) The notion regarding eliminating as many non-value-added activities as possible applies equally to manufacturers and service providers. 4) All of these statements are true concerning the use of ABC in service industries. |
2) When using ABC for service industries, special methods must be used to identify... |
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Activity-based-costing (a) can be used only in a process cost system. (b) focuses on units of production. (c) focuses on activities performed to produce a product. (d) uses only a single basis of allocation. |
Focuses on activities performed to produce a product. |
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The first step in the development of an activity-based costing system is. (a) identify and classify activities and allocate overhead to cost pools. (b) assign overhead costs to products. (c) identify cost drivers. (d) compute overhead rates. |
Identify and classify activities and allocate overhead to cost pools. |
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Which of the following would be the best cost driver for the assembling cost pool? (a) Number of product lines. (b) Number of parts. (c) Number of orders. (d) Amount of square footage. |
Number of parts |
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The overhead rate for Machine Setups is $100 per setup. Products A and B have 80 and 60 setups, respectively. The overhead assigned to each product is:
(a)Product A $8,000, Product B $8,000. (b)Product A $8,000, Product B $6,000. (c)Product A $6,000, Product B $6,000. (d)Product A $6,000, Product B $8,000. |
Product A: 8000 Product B: 6000 |
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Donna Crawford Co. has identified an acitvity cost pool to which it has allocated estimated overhead of 1,920,000. It has determined the expected use of cost drivers for that activity to be 160,000 inspections. Widgets require 40,000 inspections, Gadgets 30,000 inspections, and Targets 90,000 inspections. The overhead assigned to each product is. (a)Widgets $40,000, Gadgets $30,000, Targets $90,000. (b)Widgets $640,000, Gadgets $640,000, Targets $640,000. (c)Widgets $360,000, Gadgets $480,000, Targets $1,080,000. (d)Widgets $480,000, Gadgets $360,000, Targets $1,080,000. |
Widgets 480,000 Gadgets 360,000 Targets 1,080,000 |
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A frequently cited limitation of activity-based costing is: (a)ABC results in more cost pools being used to assign overhead costs to products. (b)certain overhead costs remain to be allocated by means of some arbitrary volume-based cost driver such as labor or machine hours. (c)ABC leads to poorer management decisions. (d)ABC results in less control over overhead costs. |
Certain overhead costs remain to be allocated by means of some arbitrary volume-based cost driver such as labor or machine hours |
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A company should consider using ABC if: (a)overhead costs constitute a small portion of total product costs. (b)it has only a few product lines that require similar degrees of support services. (c)direct labor constitutes a significant part of the total product cost and a high correlation exists between direct labor and changes in overhead costs. (d)its product lines differ greatly in volume and manufacturing complexity. |
Its product line differ greatly in volume and manufacturing complexity |
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An activity that adds cost to the product but does not increase its perceived market value is a: (a)overhead costs constitute a small portion of total product costs. (b)it has only a few product lines that require similar degrees of support services. (c)direct labor constitutes a significant part of the total product cost and a high correlation exists between direct labor and changes in overhead costs. (d)its product lines differ greatly in volume and manufacturing complexity. |
Non-value added activity |
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The following activity is value-added 1) Storage of raw materials 2) Moving parts from machine to machine 3) Shaping a piece of metal on a lathe 4) All of the Above |
3) Shaping a piece of metal on a lathe
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Under just-in-time processing 1) raw materials are received just in time for use in production 2) suassembly oparts are completed just in time for use in assembling finished goods 3) finished goods are completed just in time to be sold 4) All of the above |
4) All of the above |
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The primary objective of just-in-time processing is to: 1) accumulate overhead in activity cost pools 2) eliminate or reduce all manufacturing inventories 3) identify relevant activity cost drivers 4) identify value added activities |
2) eliminate or reduce all manufacturing inventories |
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Fixed costs are costs that remain the same per unit regardless of changes in activity level True False |
False. Not per unit but in total. |
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The range over which a company expects to operate during a year is called the relevant range of the activity index. True False |
True |
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Why is determination of a relevant range important Cost behavior outside the relevant range may be distorted. Costs that occur outside this range are assumed to be linear. Most companies operate at 100% of capacity. Costs outside this range cause losses to companies. |
Cost behavior outside the relevant range may be distorted. |
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Mixed Costs change with the volume of production. are costs that vary as activity level changes, but do not stay the same per unit like variable cost. remain the same in total at every level of activity. remain the same per unit at every level of activity. |
Are costs that vary as activity level changes, but do not stay at the same per unit unlike variable cost. |
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Cost-volume-profit analysis assumes that changes in activity are the only factors that affect cost. True False |
True |
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The contribution margin ratio is computed by multiplying contribution margin by price True False |
False. Dividing contribution margin per unit by unit selling price |
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At the break-even point, contribution margin equals total variable costs. True False |
False. Contribution margin = total fixed costs |
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The amount of income or loss at each level of sales can be derived from the total sales and total cost lines in a CVP graph. True False |
True |
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Target net income objective for individual product lines set by management. True False |
True |
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Margin of safety is the difference between actual sales and sales at the break-even point. True False |
True. |
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Variable costs are costs that 1) Vary in total directly and proportionately with changes in the activity level 2) Remain the same per unit at every activity level 3) Neither of the above 4) Both (a) and (b) above |
Both (a) and (b) above |
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The relevant range is (a)the range of activity in which variable costs will be curvilinear. (b)the range of activity in which fixed costs will be curvilinear. (c)the range over which the company expects to operate during a year. (d)usually from zero to 100% of operating capacity. |
A variable cost element and a fixed cost element. |
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Your phone service provider offers a plan that is classified as a mixed cost. The cost per month for 1,000 minutes is $50. If you use 2,000 minutes this month, your cost will be:
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between 50-100 dollars |
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Kendra Corporation's total utility costs during the past year were $1,200 during its highest month and $600 during its lowest month. These costs corresponded with 10,000 units of production during the high month and 2,000 units during the low month. What are the fixed and variable components of its utility costs using the high-low method?
(a)$0.075 variable and $450 fixed. (b)$0.120 variable and $0 fixed. (c)$0.300 variable and $0 fixed. (d)$0.060 variable and $600 fixed. |
a.$0.075 variable and $450 fixed.
(1200-600) / (10000-2000) |
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Which of the following is not involved in the CVP analysis (a)Sales mix. (b)Unit selling prices. (c)Fixed costs per unit. (d)Volume or level of activity. |
C. Fixed Cost per unit |
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When comparing a traditional income statement to a CVP income statement:
(a)net income will always be greater on the traditional statement. (b)net income will always be less on the traditional statement. (c)net income will always be identical on both. (d)net income will be greater or less depending on the sales volume. |
Net income will always be identical on both |
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Contribution Margin (a) is revenue remaining after deducting variable costs. (b) may be expressed as contribution margin per unit. (c) is selling price less cost of goods sold. (d) Both (a) and (b) above. |
D. Both A & B |
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Cournot Company sells 100,000 wrenches for $12 a unit. Fixed costs are $300,000, and net income is $200,000. What should be reported as variable expenses in the CVP income statement?
(a)$700,000. (b)$900,000. (c)$500,000. (d)$1,000,000. |
700,000 (100,000 * 12) - 300,000 - 200,000 |
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Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25%. If Gossen will break even at this level of sales, what are the fixed costs?
(a)$100,000. (b)$160,000. (c)$200,000. (d)$300,000. |
200,000 ( 200,000 * 4 * .25% ) |
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Brownstone Company's contribution margin ratio is 30%. If Brownstone's sales revenue is $100 greater than its break-even sales in dollars, its net income:
(a)will be $100. (b)will be $70. (c)will be $30. (d)cannot be determined without knowing fixed costs. |
30 dollars ( 100 * .30% ) |
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The mathematical equation for computing required sales to obtain target net income is:
a) Variable Cost + Target Net Income b) Variable Cost + Fixed Cost + Target NI c) Fixed Cost + Target NI d) No Correct answer. |
Variable Cost + Fixed Cost + Target Net Income |
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Margin of safety is computed as:
(a) Actual Sales - Break Even Sales b) Contribution Margin - Fixed Cost c) Break Even Sales - Variable Cost d) Actual Sales - Contribution Margin |
Actual Sales - Break Even Sales |
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Marshall Company had actual sales of $600,000 when break-even sales were $420,000. What is the margin of safety ratio?
(a)25%. (b)30%. (c)33 1/3% (d)45%. |
30% ( 600,000 - 420,000 ) / 600,000 |
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The format of a CVP income statement is Sales – Cost of goods sold – Operating expenses = Net Income.
True False |
False |
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Contribution margin ratio is contribution margin divided by sales.
True False |
True |
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Which one of the following describes the break-even point?
It is the point where total sales equals total fixed costs. It is the point where the contribution margin equals zero. It is the point where total sales equals total variable costs plus total fixed costs. It is the point where total variable costs equal total fixed costs. |
It is the point where total sales equals total variable costs plus total fixed costs.
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Sales mix is important for companies that sell only one product.
True False |
False. For companies that sell multiple products |
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Determining the sales mix with limited resources requires determining the products with the highest contribution margin.
True False |
False. You must determine the products with the highest contribution margin per unit of limited resource. |
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If the contribution per unit is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is:
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$5 15/3.0 = 5 |
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Operating leverage refers to the extent to which a company's net income reacts to a given change in sales. True False |
true |
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Variable costing treats fixed manufacturing overhead as product costs True False |
False. Only direct materials, direct labor and variable manufacturing overhead costs are considered product costs
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Fixed manufacturing overhead costs are recognized as:
product costs under variable costing. part of ending inventory costs under both absorption and variable costing. period costs under absorption costing. product costs under absorption costing. |
Product costs under absorption costing. |
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Which of the following is not an advantage of variable costing?
1) It makes it difficult to evaluate the impact of fixed costs on a company’s results. 2) It provides a more realistic assessment of a company’s results than absorption costing. 3) It is unaffected by changes in production levels. 4) It is consistent with cost-volume-profit analysis. |
1) It makes it difficult to evaluate the impact of fixed costs on a company’s results.
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Mixed Cost Consist of: (a)variable-cost element and a fixed-cost element. (b)fixed-cost element and a controllable-cost element. (c)relevant-cost element and a controllable-cost element. (d)variable-cost element and a relevant-cost element. |
(a) variable-cost element and a fixed-cost element.
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Which of the following is a format of a CVP income statement? 1) Sales - Variable Cost = Fixed Cost + Net Income 2) Sales - Fixed Cost - Variable Cost - Operating Cost = Net Income 3) Sales - Cost of Goods Sold - Operating Expenses = Net Income 4) Sales - Variable Cost - Fixed Cost = Net Income |
4) Sales - Variable Cost - Fixed Cost = Net Income |
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Croc Catchers calculates its contribution margin to be less than zero. Which statement is true? (a)Its fixed costs are less than the variable costs per unit. (b)Its profits are greater than its total costs. (c)The company should sell more units. (d)Its selling price is less than its variable costs. |
(d)Its selling price is less than its variable costs. |
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Which one of the following describes the break-even point? (a)It is the point where total sales equals total variable plus total fixed costs. (b)It is the point where the contribution margin equals zero. (c)It is the point where total variable costs equal total fixed costs. (d)It is the point where total sales equals total fixed costs. |
(a)It is the point where total sales equals total variable plus total fixed costs. |
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The following information is available for Chap Company.
Sales $350,000 Cost of goods sold $120,000 Total fixed expenses $60,000 Total variable expenses $100,000 Which amount would you find on Chap's CVP income statement? (a)Contribution margin of $250,000. (b)Contribution margin of $190,000. (c)Gross profit of $230,000. (d)Gross profit of $190,000. |
a.Contribution margin of $250,000 (350,000-100,000) |
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Gabriel Corporation has fixed costs of $180,000 and variable costs of $8.50 per unit. It has a target income of $268,000. How many units must it sell at $12 per unit to achieve its target net income? (a)51,429 units. (b)128,000 units. (c)76,571 units. (d)21,176 units. |
(b)128,000 units. (180,000+268,000) / (12.00-8.50) |
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Mackey Corporation has fixed costs of $150,000 and variable costs of $9 per unit. If sales price per unit is $12, what is break-even sales in dollars? (a)$200,000. (b)$450,000. (c)$480,000. (d)$600,000. |
(d)$600,000. 150,000 / (3/12) |
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Sales mix is: (a)important to sales managers but not to accountants. (b)easier to analyze on absorption costing income statements. (c)a measure of the relative percentage of a company's variable costs to its fixed costs. (d)a measure of the relative percentage in which a company's products are sold. |
(d) a measure of the relative percentage in which a company's products are sold. |
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Net income will be: (a)greater if more higher-contribution margin units are sold than lower-contribution margin units. (b)greater if more lower-contribution margin units are sold than higher-contribution margin units. (c)equal as long as total sales remain equal, regardless of which products are sold. (d)unaffected by changes in the mix of products sold. |
(a) greater if more higher-contribution margin units are sold than lower-contribution margin units. |
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If the contribution margin per unit is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is: (a)$25. (b)$5. (c)$4. (d)None of the above. |
(b)$5. 15/3.0 |
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MEM manufactures two products. Product X has a contribution margin of $26 and requires 4 hours of machine time. Product Y has a contribution margin of $14 and requires 2 hours of machine time. Assuming that machine time is limited to 3,000 hours, how should it allocate the machine time to maximize its income? (a)Use 1,500 hours to produce X and 1,500 hours to produce Y. (b)Use 2,250 hours to produce X and 750 hours to produce Y. (c)Use 3,000 hours to produce only X. (d)Use 3,000 hours to produce only Y. |
(d)Use 3,000 hours to produce only Y. (26/4) < (14/2) |
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When a company has a limited resource, it should apply additional capacity of that resource to providing more units of the product or service that has: (a)the highest contribution margin. (b)the highest selling price. (c)the highest gross profit. (d)the highest contribution margin per unit of that limited resource. |
(d)the highest contribution margin per unit of that limited resource. |
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The degree of operating leverage: (a)can be computed by dividing total contribution margin by net income. (b)provides a measure of the company's earnings volatility. (c)affects a company's break-even point. (d)All of the above. |
(d)All of the above. |
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A high degree of operating leverage: (a)indicates that a company has a larger percentage of variable costs relative to its fixed costs. b)is computed by dividing fixed costs by contribution margin. (c)exposes a company to greater earnings volatility risk. (d)exposes a company to less earnings volatility risk. |
(c)exposes a company to greater earnings volatility risk. |
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Stevens Company has a degree of operating leverage of 3.5 at a sales level of $1,200,000 and net income of $200,000. If Stevens' sales fall by 10%, Stevens can be expected to experience a: (a)decrease in net income of $70,000. (b)decrease in contribution margin of $7,000. (c)decrease in operating leverage of 35%. (d)decrease in net income of $175,000. |
(a)decrease in net income of $70,000. (200,000 * 3.5 * 10) |
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Fixed manufacturing overhead costs are recognized as: (a)period costs under absorption costing. (b)product costs under absorption costs. (c)product costs under variable costing. (d)part of ending inventory costs under both absorption and variable costing. |
(b)product costs under absorption costs. |
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Net income computed under absorption costing will be: (a)higher than net income under variable costing in all cases. (b)equal to net income under variable costing in all cases. (c)higher than net income under variable costing when units produced are greater than units sold. (d)higher than net income under variable costing when units produced are less than units sold. |
(c)higher than net income under variable costing when units produced are greater than units sold. |
