question

Limousine Conversion Company purchases ordinary Cadillacs, cuts them in half, and then adds a middle section to the vehicles to create stretch limousines. With respect to the number of cars converted, the cost of the Cadillacs purchased for conversion by Limousine Conversion Company would best be described as a:

answer

d. variable cost

question

A managerial accounting report that presents predicted amounts of the company's assets, liabilities, and equity as of the end of the budget period is called a(n):

answer

c. Budgeted balance sheet

question

Data concerning volume-related measures are readily available in most manufacturing settings.

answer

T

question

Which of the following budgets is not an operating budget?

answer

b. Cash budget.

question

Many companies link manager bonuses to income computed under absorption costing because this is how income is reported to shareholders.

answer

T

question

Contribution margin divided by sales equals contribution margin ratio

answer

T

question

Product costs consist of direct labor, direct materials and overhead.

answer

T

question

In preparing a master budget, top management is generally best able to:

answer

b. provide a perspective on the company as a whole.

question

Which of the following would not be considered a product cost?

answer

d. Cost accountant's salary.

question

Activity-based costing first assigns costs to products and then uses these product costs to assign costs to manufacturing activities.

answer

F

question

Machine setup costs are an example of a batch level activity.

answer

T

question

Product level costs do not vary with the number of units or batches produced.

answer

T

question

Which of the following factors is least likely to be considered in preparing a sales budget?

answer

d. The capital expenditures budget.

question

The contribution margin ratio is the percent by which the margin of safety exceeds the break-even point.

answer

F

question

The use of absorption costing can result in misleading product cost information.

answer

T

question

The process of evaluating performance can be improved by using budgets.

answer

T

question

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.

answer

T

question

Overhead costs:

answer

c. Cannot be traced to units of product in the same way that direct labor can.

question

As the level of output activity increases, the variable cost per unit remains constant.

answer

T

question

Dividing a mixed cost into its separate fixed and variable cost components makes it more difficult to do cost-volume-profit analysis.

answer

F

question

Which budget must be completed after a cash budget is prepared?

answer

e. Budgeted income statement.

question

The traditional income statement organizes costs on the basis of cost behavior.

answer

F

question

Providing the power required to run production equipment is an example of a:

answer

a. Unit-level activity.

question

The margin of safety is the amount that sales can drop before the company incurs a loss.

answer

T

question

During a given year, if a company sells more units than it produces, then ending inventory units will be less than beginning inventory units.

answer

T

question

The master budget includes:

answer

e. Operating budgets, a capital expenditure budget and financial budgets.

question

The cost object of the plantwide overhead rate method is:

answer

a. The unit of product.

question

Managers should accept special orders provided the special order price exceeds full cost.

answer

F

question

Which of the following statements is true with regard to the departmental overhead rate method?

answer

b. It is logical to use this method when overhead resources are consumed by various products in substantially different ways throughout multiple departments.

question

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:

answer

d. Continuous budgeting.

question

Merchandising companies prepare the production budget after preparing the sales budget.

answer

F

question

Part of the cash budget is based on information drawn from the capital expenditures budget.

answer

T

question

Which of the following is a disadvantage of the departmental overhead rate method?

answer

a. The departmental overhead rate method assigns overhead on the basis of volume-related measures.

question

The contribution margin per unit expressed as a percentage of the product's selling price is the:

answer

c. Contribution margin ratio.

question

Which of the following are advantages of using the plantwide overhead rate method?

answer

b. The necessary information is readily available.

question

Facility level costs vary with the number of units or batches produced.

answer

F

question

Allocated overhead costs vary depending upon the allocation methods used.

answer

T

question

Unit contribution ratio is calculated by dividing sales price per unit by the unit contribution margin.

answer

F

question

The merchandise purchases budget is the starting point for preparing the master budget.

answer

F

question

Activity-based costing eliminates the need for overhead allocation rates.

answer

F

question

When units produced are less than units sold, income under absorption costing is higher than income under variable costing.

answer

F

question

The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.

answer

F

question

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.

answer

d. I.

question

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.

answer

T

question

Which of the following is a financial budget?

answer

b. Budgeted balance sheet.

question

A budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities is:

answer

d. Activity-based budgeting.

question

Which of the following is not true?

answer

d. The departmental overhead rate method does not assign overhead on the baisis of volume-related measures.

question

The more activities tracked by activity-based costing, the more accurately overhead costs are assigned.

answer

T

question

Contribution margin and gross margin mean the same thing.

answer

F

question

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.

answer

T

question

Least-squares regression is a statistical method for deriving an estimated line of cost behavior.

answer

T

question

Merchandising companies prepare the production budget after preparing the sales budget.

answer

F

question

Product costs consist of direct labor, direct materials, manufacturing overhead and indirect costs.

answer

F

question

Under variable costing, an increase in the fixed factory overhead will have no effect on the unit product cost.

answer

T

question

Product costs consist of direct labor, direct materials and overhead.

answer

T

question

The disbursements section of a cash budget consists of all cash payments for the period except cash payments for dividends.

answer

F

question

A cost that remains the same in total even when volume of activity varies is a:

answer

a. Fixed cost.

question

The task of preparing a budget should be the sole task of the most important department in an organization.

answer

F

question

Fixed costs change in the short run depending upon management's decision to accept or reject special orders.

answer

F

question

A variable costing income statement focuses attention on the relationship between costs and sales that is not evident from the absorption costing format.

answer

T

question

The usual budget period is:

answer

e. An annual period separated into quarterly and monthly budgets.

question

What are the main advantages of traditional volume-based allocation methods compared to activity-based costing?

answer

a. Traditional volume-based methods are easier to use and less costly to implement and maintain.

question

Setting up a machine to change from producing one product to another is an example of a:

answer

b. Batch-level activity.

question

Budgeting is an informal plan for future business activities.

answer

F

question

A variable cost is a cost that remains constant in total throughout wide ranges of activity.

answer

F

question

The first step in using the departmental overhead rate method requires that overhead be traced to each of the company's departments.

answer

T

question

The margin of safety is the excess of:

answer

e. Expected sales over breakeven sales.

question

The master budget consists of three major groups of budget components: the operating budgets, the capital expenditures budgets, and the financial budgets.

answer

T

question

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:

answer

b. High-low method.

question

Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.

answer

F

question

Variable costing is the only acceptable basis for both external reporting and tax reporting.

answer

F

question

Which of the following statements is true?

answer

a. Variable costing treats fixed overhead as a period cost.

question

When products differ in batch size and complexity, they usually consume different amounts of overhead resources.

answer

T

question

A budget is best described as:

answer

a. A formal statement of a company's future plans usually expressed in monetary terms.

question

A cost-volume-profit (CVP) chart is a graph that plots volume on the horizontal axis and costs and sales on the vertical axis.

answer

T

question

Least-squares regression is a statistical method for deriving an estimated line of cost behavior.

answer

T

question

Contribution margin and gross margin mean the same thing.

answer

F

question

With respect to a fixed cost, an increase in the activity level within the relevant range results in:

answer

d. a decrease in fixed cost per unit.

question

The usual starting point for a master budget is:

answer

c. the sales forecast or sales budget.

question

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:

answer

d. Continuous budgeting.

question

Which of the following statements is true with regard to activity-based costing rates?

answer

a. The premise of ABC is that activities are what cause costs to be incurred.

question

Variable costing is not permitted for income tax purposes, but it is widely accepted for external financial reports.

answer

F

question

Budgeting is a trade-off between planning and control in that increased use of budgeting will usually improve planning but will weaken control.

answer

F

question

The set of periodic budgets that are prepared and periodically revised in the practice of continuous budgeting is called:

answer

d. Rolling budgets.

question

The overall coordinating activity of the budget process is the responsibility of the:

answer

d. Budget Committee.

question

Degree of operating leverage (DOL) is defined as total contribution margin in dollars divided by pretax income.

answer

T

question

The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.

answer

F

question

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

answer

c. facility Unit

question

The financial budgets include the cash budget and the capital expenditures budget.

answer

F

question

A CVP graph presents data on:

answer

b. Profit, loss, and break-even on a total basis.

question

The first budget a company prepares in a master budget is the production budget.

answer

F

question

The least-squares regression method is:

answer

c. A statistical method to identify cost behavior.

question

Net operating income under variable and absorption costing will generally:

answer

c. be equal only when production and sales are equal.

question

The most complex of the cost estimation methods is the high-low method.

answer

F

question

Fixed costs expressed on a per unit basis vary inversely with changes in activity.

answer

T

question

In the preparation of financial statements using variable costing, fixed manufacturing overhead is treated as a period cost.

answer

T

question

Cost-volume-profit analysis is a precise tool for perfectly predicting the profit consequences of cost changes, price changes, and volume changes.

answer

F

question

A budget can be an effective means of communicating management's plans to the employees of a business.

answer

T

question

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.

answer

F

question

A cost-volume-profit chart is also known as a(n)

answer

c. Break-even chart.

ACCT 2 EXAM 2 ( CHAP 17-20) – Flashcards

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