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Managerial Accounting Exam Answers 3

Manufacturers may have which accounts on their balance sheet?
a. Direct materials, direct labor, and manufacturing overhead
b. Work-in-process, materials, and manufacturing overhead
c. Materials, work-in-process, and finished goods
d. Merchandise, materials, and finished goods

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c. Materials, work-in-process, and finished goods

Which of the following industries is most likely to use a process costing system?
a. Paint
b. Construction
c. Aircraft
d. Unique furniture accessories

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a. Paint

What are the two basic types of costing systems?
a. Periodic costing and process costing
b. Periodic costing and perpetual costing
c. Job order costing and process costing
d. Product costing and material inventory costing

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c. Job order costing and process costing

Which of the following is true of a JIT production system?
a. JIT requires higher inventory levels.
b. JIT requires longer setup times than a traditional production system.
c. JIT produces goods in smaller batches than a traditional production system.
d. JIT has like machines grouped together in the production facility.

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c. JIT produces goods in smaller batches than a traditional production system.

What is the last step in developing an ABC system?
a. Identify the activities
b. Allocate costs to the cost object
c. Estimate the total quantity of the cost driver
d. Estimate the total indirect costs of each activity

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b. Allocate costs to the cost object

The process of designing products that achieves cost targets and meets specified standards of quality and performance is referred to as _________________.
a. design engineering
b. value engineering
c. developmental engineering
d. total engineering

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b. value engineering

Facility-level activities are _____________.
a. activities and costs incurred for a particular product in a facility, regardless of the number of units or batches of the product produced
b. activities and costs incurred for every unit in a production facility
c. activities and costs incurred no matter how many units, batches, or products are produced in the plant
d. activities and costs incurred for every batch produced in a facility, regardless of the number of units in the batch

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c. activities and costs incurred no matter how many units, batches, or products are produced in the plant

In ABC, how is the activity allocation rate computed?
a. The total estimated activity allocation base is multiplied by the total estimated activity cost pool.
b. The total estimated activity allocation base is divided by the total estimated activity cost pool.
c. You take the total estimated activity allocation base and subtract the total estimated total activity cost pool.
d. The total estimated activity cost pool is divided by the total estimated activity allocation base.

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d. The total estimated activity cost pool is divided by the total estimated activity allocation base.

The headquarters for an international consulting firm is considered to be a(n) __________________.
a. cost center
b. investment center
c. profit center
d. revenue center

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b. investment center

Which of the following statements is true of the activity-based management?
a. Activity-based management system uses departmental overhead rate to allocate indirect costs.
b. Activity-based management recognizes that not all indirect costs are driven by the number of units produced.
c. Activity-based management system is less preferred in making decisions on pricing and product mix.
d. Activity-based management system uses plantwide-overhead rate to allocate indirect costs

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b. Activity-based management recognizes that not all indirect costs are driven by the number of units produced.

Which of the following is most likely to be the cost driver for the packaging and shipping activity?
a. Number of components
b. Number of orders
c. Hours of testing
d. Number of setups

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b. Number of orders

Absorption cost for pricing is equal to ___________.
a. total manufacturing cost
b. fully allocated cost
c. full cost
d. manufacturing cost plus selling and administrative cost

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a. total manufacturing cost

The contribution approach to pricing makes a basic distinction between __________________.
a. fixed and variable costs; manufacturing and nonmanufacturing costs
b. past and future costs; fixed and variable costs
c. relevant and irrelevant costs; past and future costs
d. relevant and irrelevant costs; manufacturing and nonmanurfacturing costs
e. relevant and irrelevant costs; fixed and variable costs

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e. relevant and irrelevant costs; fixed and variable costs

Which of the following is an example of indirect labor in a manufacturing plant?
a. Plant managers
b. Salespersons
c. Chief operating officer
d. Machine operators

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a. Plant managersa

Which of the following situation will have a high risk of cost distortion?
a. A company adopting plantwide allocation system and producing many different products that use different types and amounts of resources
b. A company having high direct cost and relatively few indirect costs
c. A company allocating cost on activity basis and producing variable volume of different products
d. A company producing products of specialized nature using similar type and amount of resources.

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a. A company adopting plantwide allocation system and producing many different products that use different types and amounts of resources

Which of the following is true of value-engineering?
a. It eliminates waste in the system by making a company's processes as effective and efficient as possible.
b. It ensures the conversion of raw materials into finished products in the production process by making use of all the resources available in the manufacturing department of a company.
c. It ensures that the final product satisfies customers and the end product is priced at above market price, resulting in higher profits.
d. Customers are ready to pay for value engineering as they add value to final products or services.

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a. It eliminates waste in the system by making a company's processes as effective and efficient as possible.

Which of the following is true of a backflush costing system?
a. Backflush costing system identifies value-adding activities and results in adjusted pricing accordingly
b. In a backflush costing system, the ending inventory of finished goods is considered for computing the cost of goods sold at the end of the period.
c. Value engineering is highly discouraged in a backflush costing system.
d. In a backflus costing system, the production costs are not assigned to the units until they are finished, or even sold.

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d. In a backflus costing system, the production costs are not assigned to the units until they are finished, or even sold.

The benefits of using the ABC costing system are higher if the company
a. produces only one product
b. has high indirect costs
c. produces many different products that use differing amounts of resources
d. has high indirect costs and produces many different products that use differing amounts of resources.

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d. has high indirect costs and produces many different products that use differing amounts of resources.

Which of the following is false?
a. Relevant information always differs among alternatives
b. Relevant information always regards the future
c. Relevant information is always financial in nature
d. Sunk cost are never relevant to a decision.

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c. Relevant information is always financial in nature

When resources are constrained, which of the following should be used to guide product mix decisions?
a. The products' gross margin
b. The products' contribution margin
c. the products' gross margin per unit of constraint
d. the products' contribution margin per unit of constraint

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d. the products' contribution margin per unit of constraint

Manager of Holiday Inn's central reservation office
a. Cost center
b. Investment center
c. Profit center
d. Revenue center

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d. Revenue center

The human resources department for Kohl's Department Stores may be classified as a(n)
a. revenue center.
b. cost center.
c. profit center.
d. investment center.

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b. cost center.

A segment margin is the
a. segment's contribution margin minus all fixed costs.
b. segment's contribution margin minus direct fixed costs.
c. segment's contribution margin minus allocated fixed costs.
d. same as the segment's contribution margin

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b. segment's contribution margin minus direct fixed costs.

Which of the following is false regarding choosing between two cost structures
a. The indifference point is the point at which costs under two options are the same
b. Choose the higher operating leverage option when sales volume is expected to be higher than the indifference point
c. Choose the lower operating leverage option when sales volume is expected to be lower than the indifference point
d. The indifference point is the point where total revenues equal total expenses

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d. The indifference point is the point where total revenues equal total expenses

Most companies use the ________ asset balance since the income used in the ROI calculation is earned over the year.
a. average
b. beginning
c. ending

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a. average

Manager of the Holiday Inn Express corporate division
a. Cost center
b. Investment center
c. Profit center
d. Revenue center

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b. Investment center

The local branch office of a national bank is considered to be a(n) ____________.
a. cost center
b. investment center
c. profit center
d. revenue center

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c. profit center

Which of the following financial performance measures can be used to compare potential projects of different sizes?
a. Sales revenue
b. ROI
c. Operating income
d. Residual income

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b. ROI

Disadvantages of using standard costs and variances include all of the following except
a. traditional standards can promote unfavorable employee behavior.
b. the excessive cost to keep standards up−to−date.
c. companies that pay employees a salary because direct labor is a fixed cost rather than a variable cost.
d. those manufacturing costs that enter Work in Process Inventory are recorded at standard cost, rather than actual cost.

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d. those manufacturing costs that enter Work in Process Inventory are recorded at standard cost, rather than actual cost.

Which element of the value chain would depreciation on a factory be classified as?
a. Distribution
b. Design
c. Research and Development
d. Production

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d. Production

A salesperson's salary would be classified as ________ when determining the cost of a manufactured product.
a. an indirect cost
b. a period cost
c. a direct cost
d. none of the above

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b. a period cost

When calculating a departmental overhead rate, what should the numerator be?
a. Actual quantity of departmental allocation based used by the job
b. Total estimated amount of the departmental allocation base
c. Total estimated amount of manufacturing overhead for the factory
d. Total estimated departmental overhead cost pool

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d. Total estimated departmental overhead cost pool

All of the following are considered to be part of the cost hierarchy often used to implement ABC, with the exception of
a. batch-level activity
b. unit-level activity
c. production-level activity
d. product-level activity

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c. production-level activity

All of the following are inventoriable costs except
a. VP of marketing's salary
b. plant supervisor's salary
c. depreciation on the factory
d. wood used in the manufacturing of a wooden chair

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a. VP of marketing's salary

Inventoriable product costs include which of the following?
a. Period costs, overhead, and direct labor
b. Costs of direct materials, direct labor, and manufacturing overhead used to produce a product
c. Marketing costs
d. Costs of direct materials and direct labor used to produce a product

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b. Costs of direct materials, direct labor, and manufacturing overhead used to produce a product

When do inventoriable costs become expenses?
a. When the direct materials are purchased
b. When the manufacturing process begins
c. When the manufacturing process is completed
d. When the units in inventory are sold

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d. When the units in inventory are sold

On a Cost of Quality report, which of the following cost items should be classified as a prevention cost?
a. Technical support provided to suppliers
b. Warranty expenses on defective products
c. Supervision of quality inspections
d. Net cost of spoiled units

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a. Technical support provided to suppliers

The cost of maintaining quality control testing equipment would be classified as a(n)___________________ cost.
a. external failure
b. internal failure
c. appraisal
d. prevention

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c. appraisal

The higher the operating leverage factor, the
a. greater the impact of volume on operating income
b. lessen the impact of volume on operating income
c. more likely operating income is to stay constant
d. none of the above

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a. greater the impact of volume on operating income

Managers may intentionally build slack into the budget
a. to acquire the resources they need in the event the organization implements a budget cut.
b. because they are uncertain about the future.
c. to make their performance appear better.
d. because all of the above are true

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d. because all of the above are true

The _________ budget is a component in a financial budget.
a. direct materials
b. sales
c. operating expense
d. cash

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d. cash

Which of the following statements about budgeting is not true?
a. The operating budget should be prepared by top management, rather than mid-management personnel, because they have the overall objectives of the company in mind.
b. budgets promote communication and coordination between departments in an organization.
c. Budgeting is an aid to planning and control.
d. Budgets help to coordinate the activities of the entire organization

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a. The operating budget should be prepared by top management, rather than mid-management personnel, because they have the overall objectives of the company in mind.

Which of the following budgets usually shows separate sections for fixed and variable costs?
a. Production budget and manufacturing overhead budget
b. Direct materials and manufacturing overhead budget
c. Operating expenses budget and manufacturing overhead budget
d. Manufacturing overhead budget and production budget

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c. Operating expenses budget and manufacturing overhead budget

Which of the following budgets or financial statements is part of the operating budget?
a. Cash budget
b. Budgeted balance sheet
c. Capital expenditures budget
d. Sales budget

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d. Sales budget

How do variable costs per unit behave?
a. They increase as production decreases
b. They remain the same throughout production levels within the relevant range
c. They decrease as production increases
d. They decrease as production decreases

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b. They remain the same throughout production levels within the relevant range

When job costing is used at a service firm, the bill to the client shows
a. actual direct cost of providing the service
b. the allocation of indirect costs
c. the profit on the job
d. the billing rate and hours spent on the job

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d. the billing rate and hours spent on the job

The __________ is a plan that shows the units to be sold and the projected selling price and is also the starting point in the budgeting process.
a. budgeted income statement
b. sales budget
c. cash budget
d. budgeted statement of cash flows

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b. sales budget

Which of the following is not part of the operating budget?
a. Inventory, purchases and cost of goods sold budget
b. Budgeted income statement
c. Sales budget
d. Cash budget

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d. Cash budget

Managers of various corporate-owned Holiday Inn locations
a. Cost center
b. Investment center
c. Profit center
d. Revenue center

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c. Profit center

Companies with production constraints and irrelevant fixed costs will be most profitable when they maximize production of the product with the highest
a. contribution margin per unit of the constraint
b. contribution margin per unit
c. sales price
d. demand for the product

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a. contribution margin per unit of the constraint

"Financial budget" is best described by which of the following?
a. A system for evaluating the performance of each responsibility center and its manager
b. A company's plan to purchase property, plant and equipment, and other long-term assets
c. A budget that projects cash inflows, cash outflows, and the end of period budgeted balance sheet
d. A budget that shows projected sales, purchases, and operating expenses

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c. A budget that projects cash inflows, cash outflows, and the end of period budgeted balance sheet

All of the following are period costs except
a. depreciation on office equipment
b. salespersons' commission
c. plant manager's salary
d. office supplies used

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c. plant manager's salary

Inventoriable product costs include which of the following?
a. Costs of direct materials and direct labor used to produce a product
b. Marketing costs
c. Period costs, overhead, and direct labor
d. Costs of direct materials, direct labor, and manufacturing overhead used to produce a product

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d. Costs of direct materials, direct labor, and manufacturing overhead used to produce a product

Fixed expenses that can be traced to the segment are called ___________________.
direct fixed expenses

To evaluate the performance of a(an) ___________, a top manager is responsible for revenues, costs, and the efficient use of the assets invested in the division.
a. profit center
b. cost center
c. investment center
d. revenue center

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c. investment center

Manager of the Housekeeping Department at Holiday Inn
a. Cost center
b. Investment center
c. Profit center
d. Revenue center

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a. Cost center

Which of the following is an example of a financial budget?
a. Budgeted income statement
b. Sales budget
c. Budgeted balance sheet
d. Operating expenses budget

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c. Budgeted balance sheet

Which of the following is the operating income an investment center generates before subtracting common fixed costs that are allocated to the center?
a. Sales volume variance
b. ROI
c. Segment margin
d. ROA

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c. Segment margin

Which of the following causes the master budget variance between the amounts in the master budget and the flexible budget of a revenue center?
a. The cost of sales
b. The number of units sold differs from planned sales levels
c. The selling price per unit
d. Both the selling price and the number of units sold

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b. The number of units sold differs from planned sales levels

The percentage of products with schematics and detailed operating instructions available within the company's information system for use by customer service representatives may be an example of measuring which perspective of the balanced scorecard?
a. customer
b. learning and growth
c. internal business
d. financial

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c. internal business

The assignment of direct and indirect materials to a cost object reduces the
a. manufacturing overhead account.
b. finished goods inventory account.
c. raw materials inventory account.
d. work-in-process inventory account.

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c. raw materials inventory account.

In the basic flow of inventory through a manufacturing system, which of the following occurs last in the job costing system?
a. Raw materials inventory
b. Finished goods inventory
c. Work-in-process inventory
d. Cost of goods sold

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d. Cost of goods sold

The ________________ is the hourly price charged to clients for professional labor.
a. billing rate
b. job rate
c. salary rate
d. wage rate

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a. billing rate

Regarding activity-based costing systems, which of the following statements is true?
a. ABC costing systems have separate indirect cost allocation rates for each activity.
b. ABC systems accumulate overhead costs by departments.
c. ABC costing systems can be used in manufacturing firms only.
d. ABC costing systems are less complex and, therefore, less costly than traditional systems.

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d. ABC costing systems are less complex and, therefore, less costly than traditional systems.

The data points with the __________ should be selected for use in calculating the variable cost per unit and the total fixed costs when using the high-low method.
a. highest cost and lowest cost
b. highest cost and the lowest volume
c. highest volume and the lowest cost
d. highest volume and the lowest volume

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d. highest volume and the lowest volume

A company with a low operating leverage a. Has relatively more fixed costs than variable costs b. Has relatively more variable costs than fixed costs c. Has an equal proportion of fixed and variable costs d. Has relatively more risk than a company with high operating leverage

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b. Has relatively more variable costs than fixed costs

The cash budget helps managers determine whether or not the company requires financing in a given month.
A. TRUE
B. FALSE

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a. true

Inventoriable costs are direct materials, direct labor and overhead, combined
A. TRUE
B. FALSE

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a. true

An investment center is generally a large cost division of a corporation.
A. TRUE
B. FALSE

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a. True

Both the static budget and the flexible budget used for performance evaluation are developed before the period of actual production.
A. TRUE
B. FALSE

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b. False

The local Burger King restaurant is likely classified as a revenue center.
A. TRUE
B. FALSE

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b. False

CVP assumes that inventory levels will not change
A. TRUE
B. FALSE

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a. true

The variable overhead efficiency is also called the variable overhead spending variance.
A. TRUE
B. FALSE

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b. false

The amount of overallocation or underallocation is typically corrected by adjusting Cost of Goods Sold on the income statement
A. TRUE
B. FALSE

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a. true

An R-square value over .80 generally indicates that the cost equation is not very reliable for predicting costs at other volumes within the relevant range.
A. TRUE
B. FALSE

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b. false

The cost equation determined by regression analysis is usually more accurate than the line determined by the high-low method
A. TRUE
B. FALSE

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a. true

CVP analysis helps managers prepare for and respond to economic changes, such as increasing costs and pressure to drop sales price.
A. TRUE
B. FALSE

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a. true

Fixed costs vary in total over a wide range of activity levels.
A. TRUE
B. FALSE

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b. false

Product costs and period costs receive similar treatment when presented in the financial statements.
A. TRUE
B. FALSE

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b. False

If manufacturing overhead has been underallocated during the year, it means the jobs have been undercosted.
A. TRUE
B. FALSE

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a. true

Cost of goods sold is a major expense of service companies.
A. TRUE
B. FALSE

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b. false

Cost center performance reports typically focus on the static budget variance.
A. TRUE
B. FALSE

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b. False

Regression analysis uses all data points, not just the highest and lowest volume data points
A. TRUE
B. FALSE

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a. true

Regression analysis can be used in ABC implementations to help managers select the primary cost driver for an activity cost pool.
A. TRUE
B. FALSE

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True

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