Combo with Accounting 2 - Chapter 25 - Test 3 - Review MC and 5 others

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The amount of income that would result from an alternative use of cash is called:

opportunity cost

A cost that will not be affected by later decisions is termed a(n):

sunk cost

A practical approach which is frequently used by managers when setting normal long-run prices is the:

cost-plus approach

Which of the following would be considered a sunk cost?

Net book value of obsolete equipment that has no market value

Relevant revenues and costs focus on:

differences between the alternatives being considered

In using the product cost concept of applying the cost-plus approach to product pricing, what is included in the markup?

Total selling and administrative expenses plus desired profit

Managers who often make special pricing decisions are more likely to use which of the following cost concepts in their work?

Variable cost

Which of the following is NOT a cost concept commonly used in applying the cost-plus approach to product pricing?

Fixed cost concept

In using the total cost concept of applying the cost-plus approach to product pricing, what is included in the markup?

Desired profit

In using the variable cost concept of applying the cost-plus approach to product pricing, what is included in the markup?

Total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit

What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the "markup"?

Total cost concept

What cost concept used in applying the cost-plus approach to product pricing includes only total manufacturing costs in the "cost" amount to which the markup is added?

Product cost concept

Defense contractors would be more likely to use which of the following cost concepts in pricing their product?

Total cost

What cost concept used in applying the cost-plus approach to product pricing covers selling expenses, administrative expenses, and desired profit in the "markup"?

Product cost concept

All of the following should be considered in a make or buy decision except

the supplier will make a profit that would no longer belong to the business

Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?

when the variable costs are less than revenues

In contrast to the total product and variable cost concepts used in setting seller's prices, the target cost approach assumes that:

selling price is set by the marketplace

A business may decide to accept additional business at a special price for all of the following reasons except

if there is an increase to sales even if fixed expenses are also increased.

What pricing method is used if all costs are considered and a fair mark-up is added to determine the selling price?

Total cost method

Which equation better describes Target Costing?

Selling Price - Desired Profit = Target Costs

What pricing method may be used if there are several providers in the same market and there is sufficient demand for your product?

Competition-based method

Target costing is arrived at by

taking the selling price and subtracting desired profit.

Which of the following would be most effective in a small owner/manager-operated business?

Centralization

Businesses that are separated into two or more manageable units in which managers have authority and responsibility for operations are said to be:

decentralized

Which of the following is NOT a disadvantage of decentralized operation?

Top management freed from everyday tasks to do strategic planning

Which is the best example of a decentralized operation?

Each unit is responsible for their own operations and decision making.

The following are advantages of decentralization except:

Each decentralized operation purchases their own assets and pays for operating costs.

Which of the following is not one of the common types of responsibility centers?

Revenue Center

Which of the following is a disadvantage of decentralization?

Decisions made by one manager may negatively affect the profitability of the entire company.

A manager is responsible for costs only in a(n):

cost center

In a cost center, the manager has responsibility and authority for making decisions that affect:

costs

For higher levels of management, responsibility accounting reports:

are more summarized than for lower levels of management

Most manufacturing plants are considered cost centers because the have control over

costs only.

The following is a measure of a manager's performance working in a cost center.

budget performance report

A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n):

profit center

In a profit center, the department manager has responsibility for and the authority to make decisions that affect:

both costs and revenues for the department or division

Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?

Insurance on inventory of sporting goods

Which of the following expenses incurred by a department store is an indirect expense?

Salary of vice-president of finance

In a profit center, the manager has responsibility and authority for making decisions that affect:

costs

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed:

direct expenses

In evaluating the profit center manager, the income from operations should be compared:

to historical performance or budget

The costs of services charged to a profit center on the basis of its use of those services are called:

service department charges

To calculate income from operations, total service department charges are:

subtracted from income from operations before service department charges

What is the term used to describe expenses that are incurred for the benefit of a specific department?

Direct expenses

Responsibility accounting reports for profit centers will include

revenues, expenses, net income or loss from operations.

Some organizations use internal service departments to provide like services to several divisions or departments within an organization. Which of the following would probably not lend itself as a service department?

Inventory Control

The following is a measure of a manager's performance working in a profit center.

divisional income statements

Which of the following would not be considered an internal centralized service department?

Manufacturing department

Managers of what type of decentralized units have authority and responsibility for revenues, costs, and assets invested in the unit?

Investment center

A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called:

an investment center

In an investment center, the manager has the responsibility for and the authority to make decisions that affect:

not only costs and revenues, but also assets invested in the center

In an investment center, the manager has responsibility and authority for making decisions that affect:

costs, revenues, and assets

The profit margin is the:

ratio of income from operations to sales

The investment turnover is the:

ratio of sales to invested assets

Identify the formula for the rate of return on investment.

Income From Operations/Invested Assets

Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment?

Income From Operations/Sales

Which of the following expressions is termed the investment turnover factor as used in determining the rate of return on investment?

Sales/Invested Assets

What additional information is needed to find the rate of return on investment if income from operations is known?

Invested assets

The best measure of managerial efficiency in the use of investments in assets is:

investment turnover

The excess of divisional income from operations over a minimum amount of divisional income from operations is termed:

residual income

Which one of the following is NOT a measure that management can use in evaluating and controlling investment center performance?

Negotiated price

A factor in determining the rate of return on investment--the ratio of income from operations to sales--is called:

profit margin

A factor in determining the rate of return on investment--the ratio of sales to invested assets--is called:

investment turnover

Investment centers differ from profit centers in that they

are able to invest in assets.

The balanced scorecard measures financial and nonfinancial performance of a business. The balanced scorecard measures four areas. Identify one of the following that is not included as a performance measurement.

Employees

The following is a measure of a manager's performance working in an investment center.

A. budget performance report
B. rate of return and residual income measures
C. divisional income statements

The balanced scorecard measures

both financial and nonfinancial information

Which of the following is not a commonly used approach to setting transfer prices?

Revenue price approach

Determining the transfer price as the price at which the product or service transferred could be sold to outside buyers is known as the:

Market price approach

When is it appropriate to use the market price approach when two related companies are providing services or products to each other?

The purchasing company is currently purchasing a product at a price from an outside supplier as it would from its related company that is operating at full capacity.

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

Market Price

The transfer price which is uses a variety of cost concepts is the

Cost price approach

The transfer price that must be less than the market price but greater than the supplying division's variable costs per unit is called

the negotiated cost approach

Standard costs are used in companies for a variety of reasons. Which of the following is not one of the benefits for using standard costs?

Used to indicate where changes in technology and machinery need to be made.

Manufacturing companies use standard costs for the following except:

Variable costs

Several people play an essential part in setting standards. Which of the following is incorrect as to setting standards?

Quality managers provide quality measures that will be used to evaluate rejects.

Standards that represent levels of operation that can be attained with reasonable effort are called:

normal standards

Which of the following conditions normally would not indicate that standard costs should be revised?

Actual costs differed from standard costs for the preceding week.

The principle of exceptions allows managers to

focus on correcting variances between standard costs and actual costs.

The standard price and quantity of direct materials are separated because:

direct materials prices are controlled by the purchasing department, and quantity used is controlled by the production department

Standard costs are divided into which of the following components?

Price Standard and Quantity Standard

A favorable cost variance occurs when

Standard costs are more than actual costs.

Total manufacturing cost variance includes:

Direct materials cost variance, direct labor cost variance, factory overhead cost variance

Periodic comparisons between planned objectives and actual performance are reported in:

budget performance reports

Which of the following is not a reason standard costs are separated in two components?

variances brings attention to discrepancies in the budget and requires managers to revise budgets closer to actual.

If the actual quantity of direct materials used in producing a commodity differs from the standard quantity, the variance is termed:

quantity variance

If the price paid per unit differs from the standard price per unit for direct materials, the variance is termed:

price variance

If the wage rate paid per hour differs from the standard wage rate per hour for direct labor, the variance is termed:

rate variance

If the actual direct labor hours spent producing a commodity differ from the standard hours, the variance is termed:

time variance

The formula to compute direct material quantity variance is to calculate the difference between

(actual quantity * standard price) - standard costs

The formula to compute direct labor rate variance is to calculate the difference between

actual costs - (actual hours * standard rate)

The formula to compute direct labor time variance is to calculate the difference between

(actual hours * standard rate) - standard costs

Which of the following would not lend itself to applying direct labor variances?

Administrative assistant

Which of the following is not a reason for a direct materials quantity variance?

Material requiring rework

The formula to compute direct materials price variance is to calculate the difference between

actual costs - (actual quantity * standard price)

Assuming that the standard fixed overhead rate is based on full capacity, the cost of available but unused productive capacity is indicated by the:

factory overhead cost volume variance

The controllable variance measures:

the efficiency of using variable overhead resources

The unfavorable volume variance may be due to all but the following factors:

unexpected increases in the cost of utilities

Favorable volume variances may be harmful when:

production in excess of normal capacity cannot be sold

Incurring actual indirect factory wages in excess of budgeted amounts for actual production results in a:

controllable variance

A negative fixed overhead volume variance can be caused due to the following except:

Increase in utility costs

The use of standards for nonmanufacturing expenses is:

not as common as it is for manufacturing costs

If at the end of the fiscal year the variances from standard are significant, the variances should be transferred to the:

work in process, cost of goods sold, and finished goods accounts

Variances from standard costs are usually reported to:

management

At the end of the fiscal year, variances from standard costs are usually transferred to the:

cost of goods sold account

Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.

True

Differential revenue is the amount of income that would result from the best available alternative proposed use of cash.

False

Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential revenue of producing Product P is $82 per pound.

False

If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $48.

False

Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential revenue of producing Product P is $22 per pound.

True

Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce.
The differential cost of producing Product P is $13 per pound.

True

If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $12.

True

Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential cost of producing Product P is $55 per pound.

False

A cost that will not be affected by later decisions is termed an opportunity cost.

False

The amount of income that would result from an alternative use of cash is called opportunity cost.

True

Differential analysis can aid management in making decisions on a variety of alternatives, including whether to discontinue an unprofitable segment and whether to replace usable plant assets.

True

Opportunity cost is the amount of increase or decrease in cost that would result from the best available alternative to the proposed use of cash or its equivalent.

False

A cost that will not be affected by later decisions is termed a sunk cost.

True

In deciding whether to accept business at a special price, the short-run price should be set high enough to cover all variable costs and expenses.

True

In deciding whether to accept business at a special price, the short-run price should be set high enough to cover all costs and expenses, plus provide a reasonable amount for profit.

False

Since the costs of producing an intermediate product do not change regardless of whether the intermediate product is sold or processed further, these costs are not considered in deciding whether to further process a product.

True

The costs of initially producing an intermediate product should be considered in deciding whether to further process a product, even though the costs will not change, regardless of the decision.

False

When a company is showing a net loss, it is always best to discontinue the segment in order not to continue with losses.

False

In addition to the differential costs in an equipment replacement decision, the remaining useful life of the old equipment and the estimated life of the new equipment are important considerations.

True

Eliminating a product or segment may have the long-term effect of reducing fixed costs.

True

Manufacturers must conform to the Robinson-Patman Act which prohibits price discrimination within the United States unless differences in prices can be justified by different costs of serving different customers.

True

Discontinuing a segment or product may not be the best choice when the segment is contributing to fixed expenses.

True

Make or buy options often arise when a manufacturer has excess productive capacity in the form of unused equipment, space, and labor.

True

Make or buy decisions should be made only with related parties.

False

Depending on the capacity of the plant, a company may best be served by further processing some of the product and leaving the rest as is, with no further processing.

True

The product cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.

False

In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and fixed selling and administrative expenses must be covered by the markup.

True

In using the total cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.

False

A practical approach which is frequently used by managers when setting normal long-run prices is the cost-plus approach.

True

The total cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.

True

In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and both fixed and variable selling and administrative expenses must be covered by the markup.

False

In using the product cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.

True

The product cost concept includes all manufacturing costs in the cost amount to which the markup is added to determine product price.

True

When standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon ideal levels of performance.

False

When standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon normal levels of performance.

True

The lowest contribution margin per scarce resource is the most profitable.

False

A bottleneck happens when an employee is too slow to keep with current production.

False

When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.

True

A bottleneck begins when demand for the company's product exceeds the ability to produce the product.

True

Activity-based costing is determined by charging products for only the services (activities) they used during production.

True

Activity-based costing is determined by charging products for only the services (activities) they used during production.

True

Activity-based costing is a more expensive approach to product costing.

False

Activity-based costing provides more accurate and useful cost data.

True

The DuPont formula uses financial and nonfinancial information to measure the performance of a business.

False

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