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Once the breakeven point is reached:
- the total contribution margin changes from negative to positive.
- net operating income will increase by the unit contribution margin for each additional item sold.
- variable expenses will remain constant in total.
- the contribution margin ratio begins to decrease.

net operating income will increase by the unit contribution margin for each additional item sold.

Which of the following is true regarding the contribution margin ratio of a single product company?
- As fixed expenses decrease, the contribution margin ratio increases.
- The contribution margin ratio multiplied by the variable expense per unit equals the contribution margin per unit.
- If sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio by the dollar increase in sales.
- The contribution margin ratio increases as the number of units sold increases.

If sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio by the dollar increase in sales.

Assuming that the unit sales are unchanged, the total contribution margin will decrease if:
- fixed expenses increase.
- fixed expenses decrease.
- variable expense per unit increases.
- variable expense per unit decreases.

variable expense per unit increases.

To obtain the breakeven point in terms of dollar sales, total fixed expenses are divided by which of the following?
- Variable expense per unit.
- Variable expense per unit/Selling price per unit.
- Fixed expense per unit.
- (Selling price per unit Variable
expense per unit)/Selling price per unit.

(Selling price per unit Variable
expense per unit)/Selling price per unit.

A company increased the selling price for its product from $5 to $6 per unit when total fixed expenses increased from $100,000 to $200,000 and variable expense per unit remained unchanged. How would these changes affect the breakeven point?
- The breakeven point in units would increase.
- The breakeven point in units would decrease.
- The breakeven point in units would remain unchanged.
- The effect cannot be determined from the information given.

The effect cannot be determined from the information given.

If company A has a higher degree of operating leverage than company B, then:
- company A has higher variable expenses.
- company A's profits are more sensitive to percentage changes in sales.
- company A is more profitable.
- company A is less risky.

company A's profits are more sensitive to percentage changes in sales.

Which of the following would a manufacturing company expect to experience as it automates and shifts from variable expenses to fixed expenses?
(A) A lower margin of safety percentage.
(B) A higher contribution margin ratio.
(C) A steeper total expenses line on its costvolumeprofit
graph.
(D) Both A and B above.

(D) Both A and B above.

Marston Enterprises sells three chemicals: petrol, septine, and tridol. Petrol's unit contribution margin is higher than septine's which is higher than tridol's. Which one of the following events is most likely to decrease the company's overall breakeven
point?
- The installation of new computercontrolled
equipment that reduces variable costs and increases fixed costs.
- A decrease in tridol's selling price.
- An increase in the overall market demand for septine.
- A change in the relative market demand for the products, with the increase favoring petrol relative to septine and tridol.

A change in the relative market demand for the products, with the increase favoring petrol relative to septine and tridol.

For which of the following businesses would the job order cost system be appropriate?
- Auto repair shop
- Crude oil refinery
- Drug manufacturer
- Root beer producer

Auto repair shop
In auto repair, each job will require different resources.

Which of the following is not a characteristic of job costing?
- Each job is distinguishable from other jobs.
- Identical units are produced on an ongoing basis.
- Job cost data are used for setting prices and bids.
- It is not possible to compare actual costs with estimated costs.

Identical units are produced on an ongoing basis.

Which of the following companies would most likely use job costing?
- Paper manufacturer
- Paint producer
- Breakfast cereal maker
- Advertising agency

Advertising agency
Every advertising client has different requirements. The other three strive to have a uniform product.

Which of the following documents is used as the basis for posting to the direct materials section of the job cost sheet?
- Purchase requisition.
- Materials requisition.
- Receiving report.
- Purchase order.
- Time card.

Materials requisition.
Purchase requisition, purchase order, and receiving report are documents when the materials are purchased and received. This question asks about usage of materials.

Which of the following documents is used as the basis for posting to the direct labor section of the job cost sheet?
- Purchase requisition.
- Materials requisition.
- Receiving report.
- Purchase order.
- Time card.

Time card.
Only the time card has to do with labor—the other four are materials documents.

Which of the following accounts is used to accumulate the actual manufacturing overhead costs incurred during a period?
- Applied Manufacturing Overhead
- WorkinProcess Inventory
- Manufacturing Overhead Control
- Cost of Goods Sold
- Finished Goods Inventory

Manufacturing Overhead Control
Since this is "actual" overhead it would not go to "Applied". Manufacturing Overhead Control would get the actual overheads.

What are the transfersout
from the Finished Goods Inventory called?
- Cost of Goods Manufactured
- Cost of Goods Available
- Cost of Goods Completed
- Cost of Goods Sold

Cost of Goods Sold
Product leaves finished goods when it is sold.

If a company multiplies its predetermined overhead rate by the actual activity level of its allocation base, it is using
- standard costing.
- normal costing.
- actual costing.
- budget costing.
- ideal costing.

normal costing.
Predetermined rate implies either standard or normal costing. Actual activity level is used by normal; standard activity level is used by standard costing.

If a company multiplies its actual overhead rate by the actual activity level of its allocation base, it is using
- standard costing.
- normal costing.
- actual costing.
- budget costing.
- ideal costing.

actual costing.
Actual overhead rate implies an actual costing system.

One of the primary differences between job costing for service and manufacturing companies is service firms generally
- use fewer direct materials.
- have less direct labor.
- do not use predetermined overhead rates.
- have no Work in Process Inventory.

use fewer direct materials.
Services are more intangible and have less materials.

Which of the following is not a difference between job costing for service firms and job costing for manufacturing companies?
- Service firms generally use fewer direct materials that manufacturing companies.
- Service firms' overhead accounts have slightly different titles (e.g., Applied Service Overhead).
- Service firms' finished jobs are charged to Cost of Services Billed instead of Cost of Goods Sold.
- Service firms' costs are immediately expensed since all work is completed during a period.

Service firms' costs are immediately expensed since all work is completed during a period.
Not all service jobs are completed in a period. There may very well be a workinprocess.

In a traditional job order costing system, the issue of indirect materials to a production department increases: (CPA adapted)
- Stores control.
- WorkinProcess control.
- Factory overhead control.
- Factory overhead applied.

Factory overhead control.
Indirect material is overhead—it increase factory overhead control.

Which of the following actions do not cause an impropriety in job costing?
- Misstating the stage of completion.
- Choosing to use normal costing rather than actual costing.
- Charging costs to the wrong job.
- Choosing an allocation method based on the results rather than choosing the method based on resource usage.

Choosing to use normal costing rather than actual costing.
The choice between normal costing and actual costing is not an ethical issue.

Which of the following statements does not reflect one of the fundamental themes underlying the design of cost systems for managerial purposes?
- Cost systems should have a decision focus.
- Different cost information is used for different purposes.
- Cost information for managerial purposes must meet the costbenefit principle.
- The primary purpose of cost systems is to gather information to value inventory.

The primary purpose of cost systems is to gather information to value inventory.
Managerial purposes implies decision making. Valuing inventory is financial reporting.

When a manufacturing company has a highly automated manufacturing plant producing many different products, what is probably the most appropriate basis of applying
overhead costs to workinprocess?
- Direct labor hours.
- Direct labor dollars.
- Machine hours.
- Cost of materials used.

Machine hours.
Machine hours would more closely reflect the usage of the automated equipment.

Beal Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for 2010, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to
- understate the predetermined overhead rate.
- overstate the predetermined overhead rate.
- there will be no effect on the predetermined overhead rate.
- Can't tell from the information provided.

overstate the predetermined overhead rate.
Misclassifying the direct labor will cause the numerator to be larger and the denominator to be smaller, thus overstating the rate.

In a labor intensive company in which more overhead is used by the more highly skilled and paid employees, which activity base would be most appropriate for applying
overhead to production?
- Direct labor cost.
- Direct material cost.
- Direct labor hours.
- Machine hours.
- Sales value of the product produced.

Direct labor cost.
Labor cost would reflect the higher skill level

For which of the following businesses would the job order cost system be appropriate?
- law office
- crude oil refinery
- baby formula manufacturer
- soft drink producer

law office
Law office would have many different types of jobs. The refinery, baby formula, and soft drinks would all be uniform and could use process costing.

Which method of determining product costs, joborder
costing or process costing, would be more
appropriate in each of the following situations?
a.An Elmer's glue factory. n/r
b.A textbook publisher such as McGrawHill.
n/r
c.An Exxon oil refinery. n/r
d.A facility that makes Minute Maid frozen orange juice. n/r
e.A Scott paper mill. n/r
f. A custom home builder. n/r
g.A shop that customizes vans. n/r
h.A manufacturer of specialty chemicals. n/r
i. An auto repair shop. n/r
j. A Firestone tire manufacturing plant. n/r
k.An advertising agency. n/r
l. A law office. n/r

a.An Elmer's glue factory.
Process costing
b.A textbook publisher such as McGrawHill.
Joborder costing
c.An Exxon oil refinery.
Process costing
d.A facility that makes Minute Maid frozen orange juice. Process costing
e.A Scott paper mill.
Process costing
f. A custom home builder.
Joborder costing
g.A shop that customizes vans.
Joborder costing
h.A manufacturer of specialty chemicals.
Process costing
i. An auto repair shop.
Joborder costing
j. A Firestone tire manufacturing plant.
Process costing
k.An advertising agency.
Joborder costing
l. A law office.
Joborder costing

Some of the listed companies might use either a process costing or a joborder costing system, depending on the nature of their operations and how homogeneous the final product is. For example, a chemical manufacturer would typically operate with a process costing system, but a joborder costing system might be used if products are manufactured in relatively small batches. The same thing might be true of the tire manufacturing plant in item j.

Harris Fabrics computes its predetermined overhead rate annually on the basis of direct labor hours. At the beginning of the year it estimated that its total manufacturing overhead would be $588,000 and the total direct labor would be 40,000 hours. Its actual total manufacturing overhead for the year was $740,000 and its actual total direct labor was 41,000 hours.

Compute the company's predetermined overhead rate for the year. Predetermined Overhead Rate = $X Per Direct Labor Hour

The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead $588,000
÷ Estimated total direct labor hours (DLHs) 40,000 DLHs
= Predetermined overhead rate $14.70 per DLH

Which of the following statements is true?
- When production exceeds sales, a manufacturing company's variable costing net operating income will usually be greater than its absorption costing net
operating income.
- The variable costing method is usually not used for external reporting purposes.
- The absorption costing method treats fixed production costs as period costs.
- All of the above.

The variable costing method is usually not used for external reporting purposes.

Which of the following statements is true for a company that uses variable costing?
- The unit product cost changes because of changes in the number of units manufactured.
- Profit fluctuates with sales.
- Any underapplied overhead is included in the product cost.
- Product costs include variable administration costs.

Profit fluctuates with sales.

Which of the following statements is true for a company that uses variable costing?
- The unit product cost changes as a result of changes in the number of units manufactured.
- Both variable selling costs and variable production costs are included in the unit product cost.
- Net operating income moves in the same direction as sales.
- Net operating income is greatest in periods when production is highest.

Net operating income moves in the same direction as sales.

Which of the following costs at a sofa manufacturing company would be treated as a period cost under the variable costing method?
(A) the cost of glue used to assemble the wood frame of each sofa produced
(B) Depreciation on sales vehicles
(C) The salary of a factory manager
(D) Both B and C above

(D) Both B and C above
Depreciation on sales vehicles
The salary of a factory manager

A cost that would be included in product costs under both absorption costing and variable costing would be:
- supervisory salaries.
- equipment depreciation.
- variable manufacturing costs.
- variable selling expenses.

variable manufacturing costs.

Which of the following costs at a manufacturing company would be treated as a product cost under the absorption costing method?
- Sales commissions
- Fire insurance cost on factory building
- Advertising costs
- All of the above

Fire insurance cost on factory building

Assuming that direct labor is a variable cost, product costs under variable costing include only:
- direct materials and direct labor.
- direct materials, direct labor, and variable manufacturing overhead.
- direct materials, direct labor, variable manufacturing overhead, and variable selling and administrative expenses.
- direct material, variable manufacturing overhead, and variable selling and administrative expenses.

direct materials, direct labor, and variable manufacturing overhead.

Which of the following statements is true?
(A) Expenses are not usually separated into variable and fixed elements in externally reported income statements.
(B) Even if there is no change in units sold, selling price, or cost structure, a company can increase its absorption costing net operating income from one year to the next just by producing more units.
(C) When finished goods inventory decreases during a period, a manufacturing company's absorption costing net operating income for that period will
usually be greater than its variable costing net operating income.
(D) Both A and B above.

(D) Both A and B above.
Expenses are not usually separated into variable and fixed elements in externally reported income statements.
Even if there is no change in units sold, selling price, or cost structure, a company can increase its absorption costing net operating income from one year to the next just by producing more units.

What is the cause of the difference between absorption costing net operating income and variable costing net operating income?
- Absorption costing deducts all manufacturing costs from net operating income; variable costing deducts only prime costs.
- Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories; variable costing considers all fixed manufacturing costs to be period costs.
- Absorption costing includes variable manufacturing costs in product costs; variable costing considers variable manufacturing costs to be period costs.
- Absorption costing includes fixed administrative costs in product costs; variable costing considers fixed administrative costs to be period costs.

Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories; variable costing considers all fixed manufacturing costs
to be period costs.

The gross margin for a manufacturing company is the excess of sales over:
- cost of goods sold, excluding fixed manufacturing overhead.
- all variable costs, including variable selling and administrative expenses.
- cost of goods sold, including fixed manufacturing overhead.
- variable costs, excluding variable selling and administrative expenses.

cost of goods sold, including fixed manufacturing overhead.

Weber Company computes net operating income under both the absorption costing approach and the variable costing approach. For a given year the absorption costing net operating income was greater than the variable costing net operating income. This fact suggests that:
- variable manufacturing costs were less than fixed manufacturing costs.
- more units were produced during the year than were sold.
- more units were sold during the year than were produced.
- common costs were greater than variable costs for the year.

more units were produced during the year than were sold.

Net operating income computed using variable costing would exceed net operating income computed using absorption costing if:
- units sold exceed units produced.
- units sold are less than units produced.
- units sold equal units produced.
- the average fixed cost per unit is zero.

units sold exceed units produced.

The costing method that can be used most easily with breakeven
analysis and other costvolumeprofit
techniques is:
- variable costing.
- absorption costing.
- process costing.
- joborder
- costing.

variable costing.

Purchase order processing is an example of a(n):
- Unitlevel activity.
- Batchlevel activity.
- Productlevel activity.
- Organizationsustaining activity.

Batchlevel activity.

Rank the following methods of assigning overhead costs from least accurate to most accurate.
- departmental rates, plantwide rate, activitybased
costing
- plantwide rate, departmental rates, activitybased
costing
- plantwide rate, activitybased costing, departmental rates
- activitybased costing, departmental rates, plantwide rate
- activitybased costing, plantwide rate, departmental rates

plantwide rate, departmental rates, activitybased
costing

Overhead allocation based solely on a measure of volume such as direct laborhours:
- is a key aspect of the activitybased
costing model.
- will systematically overcost highvolume
products and undercost lowvolume
products.
- will systematically overcost lowvolume
products and undercost highvolume
products.
- must be used for external financial reporting.

will systematically overcost highvolume products and undercost lowvolume products.

Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels?
- Unitlevel activity.
- Batchlevel activity.
- Customerlevel activity.
- Organizationsustaining activity.

Batchlevel activity.

Testing a prototype of a new product is an example of a(n):
- Unitlevel activity.
- Batchlevel activity.
- Productlevel activity.
- Organizationsustaining activity.

Productlevel activity.

Setting up equipment is an example of a(n):
- Unitlevel activity.
- Batchlevel activity.
- Productlevel activity.
- Organizationsustaining activity.

Batchlevel activity

The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a(n):
- Unitlevel activity.
- Batchlevel activity.
- Productlevel activity.
- Organizationsustaining activity.

Batchlevel activity.

Worker recreational facilities is an example of a cost that would ordinarily be considered to be:
- Unitlevel.
- Batchlevel.
- Productlevel.
- Organizationsustaining.

Organizationsustaining.

Which of the following statements is (are) true regarding the potential effects of using reported product costs for decision making?
(A) Traditional product costing systems (e.g., job and process costing) are designed primarily to accumulate cost information for financial reporting.
(B) If a single cost driver is used as the allocation base, applied manufacturing overhead for product costing purposes may lead to inappropriate managerial decisions.
- Only A is true
- Only B is true.
- Both A and B are true.
- Neither A nor B is true.

Both A and B are true.
- Traditional product costing systems (e.g., job and process costing) are designed primarily to accumulate cost information for financial reporting.
- If a single cost driver is used as the allocation base, applied manufacturing overhead for product costing purposes may lead to inappropriate managerial decisions.

Which of the following statements is (are) false regarding firststage and secondstage
cost allocation methods?
(A) The basic difference between a firststage
cost allocation and a secondstage cost allocation is that cost pools are not used in firststage cost allocations.
(B) Predetermined overhead rates are used in firststage cost allocations but not in secondstage
cost allocations.
- Only A is false.
- Only B is false.
- Neither A nor B is false.
- Both A and B are false.

Both A and B are false.

Activitybased costing (ABC) is a costing technique that uses a two stage allocation process. Which of the following statements best describes these two stages?
The costs are assigned to activities, and then to the products based upon their use of the activities.
The costs are assigned to departments, and then to the products based upon their use of activity resources.
Service department costs are allocated to the production departments, and then to the products based upon their use of the activities.
Indirect costs are assigned to activities, and then to the products based upon the direct cost resources used by the activities.

The costs are assigned to activities, and then to the products based upon their use of the activities.
Costs are assigned to activities first; activity usage is then used to allocate the activity costs.

Which of the following statements is true?
One of the lessons learned from activitybased
costing (ABC) is that all costs are really a function of volume.
The primary purpose of the plant wide and department allocation methods is allocating direct costs to specific products.
A problem with activitybased
costing (ABC) is that it requires more recordkeeping than other methods.
Direct cost allocations are required for the plant wide and department allocation methods.

A problem with activitybased
costing (ABC) is that it requires more recordkeeping than other methods.
Costs are a function of activities rather than volume (a) and allocations are of indirect costs rather than direct costs (b and d).

Cost pools are used with

both plantwide and departmental rates.

Which of the following should not be used as the allocation base in a company that appropriately uses a single plant wide rate?
Sales volume
Machine hours
Material costs
Direct labor cost
Direct labor hours

Sales volume
Sales volume is not related to production, while all the others are.

The electricity used for production machinery would be classified as a
volumerelated
activity.
batchrelated
activity.
productrelated
activity.
facilityrelated
activity.

volumerelated activity.
The more units are produced, the more the machines run and the more electricity is consumed.

The number of services provided by an accounting firm would be classified as a(n)
volumerelated
activity.
batchrelated
activity.
productrelated
activity.
facilityrelated
activity.
The services provided are the products, so productrelated
is the best category.

productrelated activity.
The services provided are the products, so productrelated
is the best category.

Activity analysis is one of the first stages in implementing an activitybased
costing system. Which of the following steps in "activity analysis" is usually performed first?
- Classify all activities as value added or nonvalue added.
- Record, from start to finish, the activities used to complete the product or service.
- Identify the process objectives that are defined by what the customer wants from the process.
- Improve the efficiency of all activities and develop plans to eliminate any nonvalueadded
activities.

Record, from start to finish, the activities used to complete the product or service.
(a) and (d) are later steps in the process. (c) is not part of activity analysis.

Which of the following costs is not a batchrelated
activity?
Material handling
Machine setups
Shipping costs
Compliance costs

Compliance costs are more likely a productrelated
activity.

Which of the following would NOT be a batchrelated activity?
Setting up a machine for a new production run
Performing 100% inspection
Purchasing materials
Processing a customer order

Performing 100% inspection
Performing 100% inspection would be a volumerelated
activity.

Which of the following measures is used by traditional costing systems as an allocation base for allocating overhead costs to the units produced?
Volumerelated
activities
Batchrelated
activities
Productrelated
activities
Facilityrelated
activities
Traditional costing uses volumerelated
activities exclusively.

Volumerelated activities
Traditional costing uses volumerelated
activities exclusively.

Which of the following measures is used by activitybased costing (ABC) systems as an allocation base for allocating overhead costs to the units produced?
Volumerelated
activities
Batchrelated
activities
Productrelated
activities
Facilityrelated
activities
All of these are used by ABC systems
All four activity hierarchies are used to allocate overhead.

All of these are used by ABC systems
All four activity hierarchies are used to allocate overhead.

Which of the following statements is (are) true?
(1) Activitybased
costs per unit are always greater than volumebased
costs per unit.
(2) Volumebased
costing has typically resulted in lower gross margins for high volume products and higher gross margins for low volume products.
Only (1) is true.
Only (2) is true.
Both (1) and (2) are true.
Neither (1) nor (2) are true.

Only (2) is true.
Activitybased costs are typically greater for the low volume products but not for high volume.

Volumebased
costing allocates indirect product costs based on the volume of output, using such allocation bases as direct labor hours, machine hours, or the amount of
direct material used in the production process. Activitybased
costing (ABC) has consistently shown that Volumebased
costing ___________ the cost of high volume
products and ______________ the cost of low volume products.

High volume products overstates and low volume products understates.

Which one of the following accounts is not used in an activitybased costing (ABC) system?
Materials Inventory
WorkinProcess
Inventory
Finished Goods Inventory
Overhead Applied
Allocations Incurred

Allocations Incurred
Allocations Incurred is not an account. ABC uses the same accounts that a traditional cost has, the overhead accounts are classified by activity.

Multiple (departmental) manufacturing overhead rates are considered preferable to a single (plant wide) overhead rate when (CMA adapted)
-manufacturing is limited to a single product flowing through identical departments in a fixed sequence.
-various products are manufactured that do not pass through the same departments or use the same manufacturing techniques.
-individual cost drivers cannot accurately be determined with respect to causeandeffect
relationships.
-the single or plant wide rate is related to several identified cost drivers.

various products are manufactured that do not pass through the same departments or use the same manufacturing techniques.
Multiple rates are preferred when there are variations in the products.

What is the typical effect on the numbers of cost pools and cost assignment bases when an activitybased costing (ABC) system replaces a traditional costing system? (CPA adapted)

Cost Pools Increase / Cost assignment bases increase
There are typically more cost pools under ABC and more bases as well.

Which of the following would be a reasonable basis for assigning the materials handling costs to the units produced in an activitybased
costing (ABC) system?
-Number of production runs per year
-Number of components per completed unit
-Amount of time required to produce one unit
-Amount of overhead applied to each completed unit

Number of components per completed unit

Material handling would logically be related to the amount of material in a product

Companies using activitybased costing (ABC) have learned that costs are a function of
volume and activities.
time and complexity.
volume and time.
resources and time.
volume and resources.
Volume still affects costs since there are volumerelated
activities.

volume and activities.
Volume still affects costs since there are volume related
activities.

Purchase order processing is an example of a(n):
Unitlevel activity.
Batchlevel
activity.
Productlevel
activity.
Organizationsustaining
activity.

Batchlevel
activity.

Rank the following methods of assigning overhead costs from least accurate to most accurate.
-departmental rates, plantwide rate, activitybased
costing
-plantwide rate, departmental rates, activitybased
costing
-plantwide rate, activitybased
costing, departmental rates
-activitybased costing, departmental rates, plantwide rate
-activitybased costing, plantwide rate, departmental rates

plantwide rate, departmental rates, activitybased
costing

Overhead allocation based solely on a measure of volume such as direct laborhours:
is a key aspect of the activitybased
costing model.
will systematically overcost highvolume
products and undercost lowvolume
products.
will systematically overcost lowvolume
products and undercost highvolume
products.
must be used for external financial reporting.

will systematically overcost highvolume
products and undercost lowvolume
products.

Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels?
Unitlevel
activity.
Batchlevel
activity.
Customerlevel
activity.
Organizationsustaining
activity.

Batchlevel
activity.

Testing a prototype of a new product is an example of a(n):
Unitlevel
activity.
Batchlevel
activity.
Productlevel
activity.
Organizationsustaining
activity.

Productlevel
activity.

The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a(n):
Unitlevel
activity.
Batchlevel
activity.
Productlevel
activity.
Organizationsustaining
activity.

Batchlevel
activity.

Worker recreational facilities is an example of a cost that would ordinarily be considered to be:
Unitlevel.
Batchlevel.
Productlevel.
Organizationsustaining.

Organizationsustaining.

The materials purchase budget:
-is the beginning point in the budget process.
-must provide for desired ending inventory as well as for production.
-is accompanied by a schedule of cash collections.
-is completed after the cash budget.

must provide for desired ending inventory as well as for production.

The budget or schedule that provides necessary input data for the direct labor budget is the:
raw materials purchases budget.
production budget.
schedule of cash collections.
cash budget.

production budget.

Which of the following budgets are prepared before the sales budget?

NOT the manufacturing overhead budget and NOT the cash budget

The master budget process usually begins with the:
production budget.
operating budget.
sales budget.
cash budget.

sales budget.

The cash budget must be prepared before you can complete the:
production budget.
budgeted balance sheet.
raw materials purchases budget.
schedule of cash disbursements.

budgeted balance sheet.

Which of the following is not a benefit of budgeting?
-It uncovers potential bottlenecks before they occur.
-It coordinates the activities of the entire organization by integrating the plans and objectives of the various parts.
-It ensures that accounting records comply with generally accepted accounting principles.
-It provides benchmarks for evaluating subsequent performance.

It ensures that accounting records comply with generally accepted accounting principles.

The concept of responsibility accounting means that:
Budgetary data should be reviewed and approved by the budget committee.
Budgetary data should be reviewed and approved by all levels of management.
An employee's performance should be evaluated only on those items under his or her control.
An employee's performance should be evaluated only by his or her immediate supervisor.

An employee's performance should be evaluated only on those items under his or her control.

Fairmont Inc. uses an accounting system that charges costs to the manager who has been delegated the authority to make decisions concerning the costs. For example, if
the sales manager accepts a rush order that will result in higher than normal manufacturing costs, these additional costs are charged to the sales manager because the
authority to accept or decline the rush order was given to the sales manager. This type of accounting system is known as:
responsibility accounting.
contribution accounting.
absorption accounting.
operational budgeting.

responsibility accounting.

A selfimposed
budget or ________________ budget is a budget that is prepared with the full cooperation of managers at all levels.
perpetual
master
participative
responsibility

participative

The excess or deficiency of cash available over disbursements on the cash budget is calculated as follows:
The beginning balance less the expected cash receipts less the expected cash disbursements.
The cash available less the expected cash receipts plus the expected cash disbursements.
The beginning balance plus the expected cash receipts less the expected cash disbursements.
None of the above.

The beginning balance plus the expected cash receipts less the expected cash disbursements.

Expressing plans for a business in financial terms is commonly called:
master planning.
strategic planning.
budgeting.
operational planning.

budgeting

A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the:
grand plan.
strategic plan.
master budget.
current budget.

master budget

Select the incorrect statement about budgeting committees.
-Budgeting committees usually have responsibility for the coordination of budgeting activities.
-Membership on the budgeting committee is restricted most often to accountants because the budget involves numbers.
-The budgeting committee is responsible for settling disputes between various departments over budget matters.
-One of the responsibilities of the budget committee is to monitor the organization's progress toward achieving its budget standards.

Membership on the budgeting committee is restricted most often to accountants because the budget involves numbers.

Select the incorrect statement about the planning process.
The longer the time period, the less specific the plans.
Planning decisions can often be subdivided
into three distinct planning phases, shortterm,
intermediateterm,
and longterm.
The nature of planning changes with the length of the time period being considered.
The shorter the time period, the more general the plans.

The shorter the time period, the more general the plans.

Select the incorrect statement about the master budget.
The master budget is a group of detailed budgets and schedules representing the company's operating and financial plans for the past accounting period.
The master budget usually includes operating budgets, capital budgets and pro forma financial statements.
The budgeting process usually begins with preparing the operating budgets.
Preparing the master budget begins with the sales forecast.

The master budget is a group of detailed budgets and schedules representing the company's operating and financial plans for the past accounting period.

Planning concerned with longrange
decisions such as defining the scope of the business is referred to as:
operations budgeting.
strategic planning.
capital budgeting.
master planning.

strategic planning.

MC Qu. 7 Budgeting that involves decisions such as wh...
Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as:
operations budgeting.
capital budgeting.
facilities planning.
strategic planning.

capital budgeting.

Budgeting that involves the development of a master budget to direct the firm's activities over the shortterm
is referred to as:
operations budgeting.
capital budgeting.
strategic planning.
None of the above.

operations budgeting.

The master budget normally covers:
Six months.
1 year.
13
years.
35
years.

1 year.

The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelvemonth
planning horizon, is referred
to as:
participative budgeting.
continuous budgeting.
capital budgeting.
zerobased
budgeting.

continuous budgeting

Which of the following is not a benefit of budgeting?
Sets realistic standards that serve as benchmarks for evaluating performance
Coordinates the activities of the company by integrating the plans of all departments
Requires managers to plan ahead and to formalize their objectives
Provides assurance that accounting records are in accordance with generally accepted accounting principles

Provides assurance that accounting records are in accordance with generally accepted accounting principles

One of the tasks that managers at Greensboro Company have to complete during the budgeting process is to develop a contingency plan for their organization in case a
downturn occurs in their business. This budgeting requirement is an example of:
budget coordination.
performance measurement.
planning.
taking corrective action.

planning.

When Northern Company district managers submitted their preliminary budget proposals, top management discovered that the southern district manager had requested a
new project management information system. Unfortunately, the system is incompatible with the system used at headquarters. Which of the following advantages of
budgeting reduces the likelihood that the company will end up with two incompatible systems?
Planning
Corrective action
Performance measurement
Coordination

Coordination

One company's practice is to provide bonuses to salespeople who exceed their sales targets. Which of the following advantages of budgeting enabled the company to
establish its recognition program?
Performance measurement
Coordination
Planning
Corrective action

Performance measurement

MC Qu. 15 Trina had been operating her machine for an ...
Trina had been operating her machine for an entire month before she realized that it was generating more scrap than usual. Which advantage of budgeting would have
helped her identify this problem sooner?
Planning
Corrective action
Performance measurement
Coordination

Performance measurement

Which of the following would represent the order in which most master budgets are prepared?
Sales, Purchases, Cash, Income Statement
Purchases, Cash, Sales, Income Statement
Purchases, Sales, Cash, Income Statement
Sales, Income Statement, Cash, Purchases

Sales, Purchases, Cash, Income Statement

Which of the following budgets would be prepared by a manufacturing company but not a merchandising company?
Selling and administrative expense budget
Cost of goods sold budget
Raw materials budget
Sales budget

Raw materials budget

Which of the following budgets needs to be prepared prior to preparing a purchases budget?
Selling and administrative expense budget
Cash budget
Sales budget
All of the above answers are correct.

Sales budget

Select the incorrect statement.
-Four purposes often claimed for budgeting involve planning, coordination, performance measurement, and corrective action.
-In a participative budgeting system, budget information flows in one direction only, from bottom to top.
-The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements.
-The marketing department normally coordinates the development of the sales forecast.

In a participative budgeting system, budget information flows in one direction only, from bottom to top.

Select the incorrect statement about budgeting and human behavior.
People may be uncomfortable with budgets.
Budgets are constraining.
Budgets limit individual freedom in favor of an established plan.
Participative budgeting contributes to fear and resentment.

Participative budgeting contributes to fear and resentment.

Select the incorrect statement regarding the human factor in the budgeting process.
There is a tendency for people to be uncomfortable with budgets.
The evaluation feature of budget systems is frightening for many people.
Budgets force employees to follow the organization's plan.
Proper handling of human relations is essential to the establishment of an effective budget system.

Budgets force employees to follow the organization's plan.

The budgeting technique that provides for employee input into the planning process is known as:
participative budgeting.
perpetual budgeting.
continuous budgeting.
zerobased
budgeting.

participative budgeting.

Which of the following is a benefit of participative budgeting?
Budget planning is highly centralized.
A twelvemonth
planning horizon is maintained at all times.
Employees tend to be more motivated to achieve the budget.
Communication is clearer because it flows in only one direction upward.

Employees tend to be more motivated to achieve the budget.

What is the role of top management in a participative budgeting system?
-Top management has no role the
budget is entirely developed by the lowerlevel
employees.
-Top management must ensure that employeegenerated
objectives are consistent with those of the company.
-Top management must always tighten employeeset
budget standards to eliminate employees' attempts to build slack into the standards.
-All of the above answers are correct.

Top management must ensure that employeegenerated
objectives are consistent with those of the company.

Which of the following items is not needed to prepare a sales budget by product line?
Expected unit sales of each product.
Expected purchase price of each product.
Expected selling price of each product.
All of the above answers are correct.

Expected purchase price of each product.

Which of the following items would be least useful in preparing a schedule of cash receipts?
Expected revenue from cash sales.
Past accounts receivable collection experience.
Service charges for credit card sales.
Number of units expected to be purchased.

Number of units expected to be purchased.

Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business?
Expected sales
Beginning inventory
Expected unit selling price
Desired ending inventory

Expected unit selling price

Select the correct equation format for the purchases budget.
-Beginning inventory + expected sales = required purchases.
-Cost of budgeted sales + desired ending inventory − beginning inventory = required purchases.
-Beginning inventory + expected sales − desired ending inventory = required purchases.
-Cost of budgeted sales + desired ending inventory = required purchases.

Cost of budgeted sales + desired ending inventory − beginning inventory = required purchases.

Which of the following would appear on a selling and administrative expense budget, but would not appear on a schedule of cash payments for selling and administrative
expenses?
Cost of goods sold
Depreciation expense
Salary expense
Sales expense

Depreciation expense

Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget?
Utilities expense
Administrative salaries
Advertising expense
All of the above answers are correct.

All of the above answers are correct.

Select the correct statement regarding the selling and administrative (S&A) expense budget.
The S&A budget is prepared before the sales budget.
The S&A budget is prepared after the cash budget.
The S&A budget is prepared before the pro forma income statement.
All of the above answers are correct.

The S&A budget is prepared before the pro forma income statement.

Which of the following budgets or schedules uses data contained in the selling and administrative expense budget?
Cash payments schedule
Cash receipts schedule
Inventory purchases budget
Sales budget

Cash payments schedule

Budgeted depreciation expense would not appear on a:
Cash budget.
Budgeted income statement.
Selling and administrative expense budget.
All of the above answers are correct.

Cash budget.

Which of the following cash budget equations is incorrect?
Period one ending cash balance = period two beginning cash balance
Beginning cash + cash receipts = total cash available
Cash payments + cash cushion = total cash needed
Cash payments + cash receipts = cash requirements

Cash payments + cash receipts = cash requirements

Which of the following items will not appear on a cash budget?
Expected cash payments
Expected credit sales
Expected cash collections
All of the above answers are correct.

Expected credit sales

Which of the following is not considered a pro forma financial statement?
Balance sheet
Cash flow statement
Income statement
Purchases budget

Purchases budget

With regards to financial statements, "pro forma" means:
Budgeted.
Prepared in advance.
Financial condition or position that can be expected if planning assumptions prove correct.
All of the above answers are correct.

All of the above answers are correct.

Budgeted sales commissions would appear on the:
selling, general and administrative budget and pro forma balance sheet
sales budget and pro forma balance sheet
selling, general and administrative budget and pro forma income statement
sales budget and pro forma income statement

selling, general and administrative budget and pro forma income statement

Budgeted cash payments for inventory would appear on the:
inventory purchases budget and pro forma income statement.
pro forma income statement.
cash budget and pro forma balance sheet.
inventory purchases budget and the pro forma cash flow statement.

inventory purchases budget and the pro forma cash flow statement.

Which of the following accounts would appear on the inventory purchases budget and pro forma balance sheet?
Cost of goods sold
Sales revenue
Accounts payable
Accounts receivable

Accounts payable

Which of the following accounts would appear on the sales budget and the pro forma income statement?
Accounts receivable
Selling and administrative expenses
Sales revenue
Accounts Payable

Sales revenue

Which of the following statements is incorrect?
Capital budgeting focuses on intermediate range planning.
Capital budgeting focuses on shortterm
plans.
Capital budgeting involves decisions as whether to buy or lease equipment.
Capital budgeting affects the master budget because it considers what assets a company should have and use when achieving its budgets.

Capital budgeting focuses on shortterm
plans.

Which of the following is generally included in a sales budget?
Schedule of cash receipts for the projected sales
Schedule of cash payments for inventory purchases
Budgeted cost of goods sold
Desired ending inventory

Schedule of cash receipts for the projected sales

What information does the sales budget provide for pro forma financial statements?
Total budgeted sales to be used on the pro forma income statement
Cash collections from customers to be used on the pro forma statement of cash flows
The ending balance in accounts receivable which appears on the pro forma balance sheet
All of the above answers are correct.

All of the above answers are correct.

Which of the following would not be included in the inventory purchases budget?
Budgeted cost of goods sold
Required purchases
Desired ending inventory
Total budgeted cash collections

Total budgeted cash collections

What budget is generally not included in a master budget?
Operating budget
Capital budget
Strategic budget
All of the above answers are correct.

Strategic budget

Which of the following is a true statement?
Pro forma financial statements are based on the company's budgets.
Companies prepare pro forma financial statements to show how their performance for the period will "look" if actual results match the budget.
Companies usually prepare a pro forma income statement, pro forma balance sheet, and pro forma statement of cash flows.
All of the above answers are correct.

All of the above answers are correct.

Which of the following would not be included in the cash budget?
Receipts from customers
Desired ending inventory
Selling and administrative expenses
Interest expense

Desired ending inventory

The master budget details:
Shortterm
objectives.
Longterm
objectives.
Intermediate objectives.
All of the above answers are correct.

Shortterm

Which of the following is a benefit associated with budgeting?
Promotes planning and coordination
The ability to take corrective action to improve performance
Enhances performance measurement
All of the above answers are correct

All of the above answers are correct

The type of planning that involves long term decisions, such as defining the scope of the business and deciding what products to make is known as:
Strategic planning
Continuous planning
Capital budgeting
Operations budgeting

Strategic planning

The cash budget is based on which budget?
Sales budget
Inventory purchases budget
Selling and administrative expense budget
All of the above answers are correct.

All of the above answers are correct.

The inventory purchases budget is based on which budget?
Sales budget
Cash budget
Selling and administrative expense budget
None of the above answers are correct.

Sales budget

Which of the following would not be included in a selling and administrative expenses budget?
Budgeted salary expenses
Budgeted interest expense
Cash payments for selling and administrative expenses
Budgeted rent expense

Budgeted interest expense

Which section is not included on the cash budget?
Cash receipts
Cash payments
Investing
Financing

Investing

Which of the following statements is true? Employees often find that budgets are constraining and limiting.
The attitudes and actions of upperlevel
management have little impact on the effectiveness of a company's budget.
Participative budgeting means that a company's budget should be prepared by lowerlevel
employees.
In preparing a budget, information flows occur only from the bottom up.

Employees often find that budgets are constraining and limiting.

Select the incorrect statement regarding the cash budget.
The cash budget helps managers to anticipate cash shortages and excess cash balances.
The total cash available is calculated by adding cash receipts and the ending cash balance.
Cash payments may include outflows for inventory, selling and administrative expenses, and equipment purchases.
Cash inflows and outflows indicated on the cash budget are reported on a company's pro forma statement of cash flows.

The total cash available is calculated by adding cash receipts and the ending cash balance.

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