ACCT 2 EXAM 2 ( CHAP 17-20) – Flashcards
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Many companies link manager bonuses to income computed under absorption costing because this is how income is reported to shareholders.
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T
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Contribution margin divided by sales equals contribution margin ratio
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T
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Product costs consist of direct labor, direct materials and overhead.
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T
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In preparing a master budget, top management is generally best able to:
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b. provide a perspective on the company as a whole.
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Which of the following would not be considered a product cost?
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d. Cost accountant's salary.
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Activity-based costing first assigns costs to products and then uses these product costs to assign costs to manufacturing activities.
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F
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Machine setup costs are an example of a batch level activity.
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T
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Product level costs do not vary with the number of units or batches produced.
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T
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Which of the following factors is least likely to be considered in preparing a sales budget?
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d. The capital expenditures budget.
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The contribution margin ratio is the percent by which the margin of safety exceeds the break-even point.
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F
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The use of absorption costing can result in misleading product cost information.
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T
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The process of evaluating performance can be improved by using budgets.
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T
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Cost-volume-profit analysis can be used to predict the effects of reduced selling prices, increased fixed costs, and reduced variable costs on break-even points.
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T
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Overhead costs:
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c. Cannot be traced to units of product in the same way that direct labor can.
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As the level of output activity increases, the variable cost per unit remains constant.
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T
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Dividing a mixed cost into its separate fixed and variable cost components makes it more difficult to do cost-volume-profit analysis.
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F
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Which budget must be completed after a cash budget is prepared?
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e. Budgeted income statement.
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The traditional income statement organizes costs on the basis of cost behavior.
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F
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Providing the power required to run production equipment is an example of a:
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a. Unit-level activity.
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The margin of safety is the amount that sales can drop before the company incurs a loss.
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T
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During a given year, if a company sells more units than it produces, then ending inventory units will be less than beginning inventory units.
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T
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The master budget includes:
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e. Operating budgets, a capital expenditure budget and financial budgets.
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The cost object of the plantwide overhead rate method is:
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a. The unit of product.
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Managers should accept special orders provided the special order price exceeds full cost.
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F
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Which of the following statements is true with regard to the departmental overhead rate method?
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b. It is logical to use this method when overhead resources are consumed by various products in substantially different ways throughout multiple departments.
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The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed, adding a new budget each period so that the budgets always cover the same number of future periods, is called:
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d. Continuous budgeting.
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Merchandising companies prepare the production budget after preparing the sales budget.
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F
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Part of the cash budget is based on information drawn from the capital expenditures budget.
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T
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Which of the following is a disadvantage of the departmental overhead rate method?
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a. The departmental overhead rate method assigns overhead on the basis of volume-related measures.
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The contribution margin per unit expressed as a percentage of the product's selling price is the:
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c. Contribution margin ratio.
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Which of the following are advantages of using the plantwide overhead rate method?
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b. The necessary information is readily available.
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Facility level costs vary with the number of units or batches produced.
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F
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Allocated overhead costs vary depending upon the allocation methods used.
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T
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Unit contribution ratio is calculated by dividing sales price per unit by the unit contribution margin.
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F
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The merchandise purchases budget is the starting point for preparing the master budget.
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F
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Activity-based costing eliminates the need for overhead allocation rates.
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F
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When units produced are less than units sold, income under absorption costing is higher than income under variable costing.
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F
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The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.
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F
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Which of the following are included in product costs under variable costing? I. Variable manufacturing overhead. II. Fixed manufacturing overhead. III. Selling and administrative expenses.
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d. I.
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A continuous or perpetual budget is one which covers a 12-month period but which is constantly adding a new month on the end as the current month is completed.
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T
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Which of the following is a financial budget?
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b. Budgeted balance sheet.
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A budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities is:
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d. Activity-based budgeting.
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Which of the following is not true?
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d. The departmental overhead rate method does not assign overhead on the baisis of volume-related measures.
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The more activities tracked by activity-based costing, the more accurately overhead costs are assigned.
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T
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Contribution margin and gross margin mean the same thing.
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F
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A continuous or perpetual budget is one which covers a 12-month period but which is constantly adding a new month on the end as the current month is completed.
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T
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Least-squares regression is a statistical method for deriving an estimated line of cost behavior.
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T
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Merchandising companies prepare the production budget after preparing the sales budget.
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F
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Product costs consist of direct labor, direct materials, manufacturing overhead and indirect costs.
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F
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Under variable costing, an increase in the fixed factory overhead will have no effect on the unit product cost.
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T
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Product costs consist of direct labor, direct materials and overhead.
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T
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The disbursements section of a cash budget consists of all cash payments for the period except cash payments for dividends.
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F
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A cost that remains the same in total even when volume of activity varies is a:
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a. Fixed cost.
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The task of preparing a budget should be the sole task of the most important department in an organization.
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F
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Fixed costs change in the short run depending upon management's decision to accept or reject special orders.
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F
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A variable costing income statement focuses attention on the relationship between costs and sales that is not evident from the absorption costing format.
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T
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The usual budget period is:
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e. An annual period separated into quarterly and monthly budgets.
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What are the main advantages of traditional volume-based allocation methods compared to activity-based costing?
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a. Traditional volume-based methods are easier to use and less costly to implement and maintain.
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Setting up a machine to change from producing one product to another is an example of a:
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b. Batch-level activity.
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Budgeting is an informal plan for future business activities.
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F
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A variable cost is a cost that remains constant in total throughout wide ranges of activity.
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F
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The first step in using the departmental overhead rate method requires that overhead be traced to each of the company's departments.
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T
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The margin of safety is the excess of:
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e. Expected sales over breakeven sales.
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The master budget consists of three major groups of budget components: the operating budgets, the capital expenditures budgets, and the financial budgets.
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T
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A method that estimates cost behavior by connecting the costs linked to the highest and lowest volume levels on a scatter diagram with a straight line is called the:
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b. High-low method.
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Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.
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F
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Variable costing is the only acceptable basis for both external reporting and tax reporting.
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F
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Which of the following statements is true?
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a. Variable costing treats fixed overhead as a period cost.
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When products differ in batch size and complexity, they usually consume different amounts of overhead resources.
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T
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A budget is best described as:
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a. A formal statement of a company's future plans usually expressed in monetary terms.
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A cost-volume-profit (CVP) chart is a graph that plots volume on the horizontal axis and costs and sales on the vertical axis.
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T
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Least-squares regression is a statistical method for deriving an estimated line of cost behavior.
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T
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Contribution margin and gross margin mean the same thing.
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F
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With respect to a fixed cost, an increase in the activity level within the relevant range results in:
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d. a decrease in fixed cost per unit.
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The usual starting point for a master budget is:
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c. the sales forecast or sales budget.
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The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed, adding a new budget each period so that the budgets always cover the same number of future periods, is called:
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d. Continuous budgeting.
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Which of the following statements is true with regard to activity-based costing rates?
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a. The premise of ABC is that activities are what cause costs to be incurred.
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Variable costing is not permitted for income tax purposes, but it is widely accepted for external financial reports.
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F
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Budgeting is a trade-off between planning and control in that increased use of budgeting will usually improve planning but will weaken control.
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F
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The set of periodic budgets that are prepared and periodically revised in the practice of continuous budgeting is called:
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d. Rolling budgets.
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The overall coordinating activity of the budget process is the responsibility of the:
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d. Budget Committee.
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Degree of operating leverage (DOL) is defined as total contribution margin in dollars divided by pretax income.
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T
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The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.
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F
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Would factory security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or facility-sustaining? SecurityAssembly
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c. facility Unit
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The financial budgets include the cash budget and the capital expenditures budget.
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F
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A CVP graph presents data on:
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b. Profit, loss, and break-even on a total basis.
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The first budget a company prepares in a master budget is the production budget.
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F
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The least-squares regression method is:
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c. A statistical method to identify cost behavior.
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Net operating income under variable and absorption costing will generally:
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c. be equal only when production and sales are equal.
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The most complex of the cost estimation methods is the high-low method.
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F
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Fixed costs expressed on a per unit basis vary inversely with changes in activity.
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T
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In the preparation of financial statements using variable costing, fixed manufacturing overhead is treated as a period cost.
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T
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Cost-volume-profit analysis is a precise tool for perfectly predicting the profit consequences of cost changes, price changes, and volume changes.
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F
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A budget can be an effective means of communicating management's plans to the employees of a business.
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T
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Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs.
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F
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A cost-volume-profit chart is also known as a(n)
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c. Break-even chart.
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