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Managerial Accounting Exam 2

Terms in this set (69)

Process Costing
Relates to the manufacturing of large quantities of the same item
Job Costing
Relates to a specific job or order; many different products all specially priced
Conversion Cost
Automated production processes have two categories Direct Materials and ________ Direct Labor + Manufacturing Overhead
Weighted Average Method
A process costing method that combines any beginning inventory units (and costs) with the current period's units (and costs) to get a weighted-average cost.
Fixed costs
costs that remain constant as output changes
Variable Cost
a cost that rises or falls depending on the quantity produced
High-Low Method
a method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels(Rise/Run or Y/X)
Absorption Costing
All manufacturing related costs are absorbed into product costs; Required by GAAP and IRS
Variable Costing
Only variable manufacturing costs are treated as product costs
contribution margin per unit
The excess of the unit sales price over the variable cost per unit.
Contribution Margin Ratio
ratio of contribution margin to sales revenue
Contribution Margin
sales revenue minus variable expenses
breakeven point
the point at which the costs of producing a product equal the revenue made from selling the product
Sensitivity Analysis
A what-if technique that asks what a result will be if a predicted amount is not achieved or if an underlying assumption changes
Margin of Safety
the excess of budgeted or actual dollar sales over the break-even dollar sales
Operating Leverage
the relative amount of fixed and variable costs that make up a firm's total costs
Sunk costs
costs that are made in the past and cannot be recovered
cost-plus pricing
a method of setting prices in which the seller totals all the costs for the product and then adds an amount to arrive at the selling price
Special Orders
a one-time order that is not considered part of the company's normal ongoing business
constraint
a factor that restricts the production or sale of a product
Outsourcing
Contracting with an outside company to provide a service or product instead of providing it from within the organization.
It accumulates production costs by activities.
Which of the following is false concerning process costing?

It accumulates production costs by activities.

It transfers costs from one processing department to the next.

It is well suited for a company whose products are indistinguishable from each other.

It uses multiple WIP accounts, one for each processing department.
direct labor + manufacturing overhead.
Conversion costs consist of

direct materials + direct labor + manufacturing overhead.

direct materials + direct labor.

direct labor + manufacturing overhead.

direct materials + manufacturing overhead.
Units in ending WIP are expressed in terms of equivalent units.
Which of the following is true?

FIFO is always used for process costing.

Units in ending WIP are expressed in terms of equivalent units.

A partially completed product whose direct materials are added at the beginning of the process would be 0% complete with respect to direct materials.

The weighted-average method is always used for process costing.
Summarize the flow of physical units.
Which of the following is the first step in completing the five-step process costing procedure?

Summarize total costs to account for.

Compute output in terms of equivalent units.

Summarize the flow of physical units.

Compute the cost per equivalent unit.
108
Assume 100 units were completed and transferred out during the period. The 40 units left in ending WIP are 20% complete with respect to conversion costs. The total equivalent units for conversion costs would be

100.

140.

108.

8.
Debit WIP-Finishing Dept.; Credit Wages Payable
The journal entry needed to record direct labor used but unpaid in the Finishing Department during the month would be

Debit Finished Goods Inventory; Credit Wages Payable

Debit Wages Payable; Credit Finished Goods Inventory

Debit Wages Payable; Credit WIP-Finishing Dept.

Debit WIP-Finishing Dept.; Credit Wages Payable
Debit WIP—Forming Department: $80,000; Credit WIP—Mixing Department: $80,000
A company has two sequential processing departments: Mixing and Forming. In the Mixing Department, Step 5 of the process costing procedure assigned $10,000 to units in ending WIP and $80,000 to units completed and transferred out. What journal entry is needed as a result of these calculations?

Debit WIP—Mixing Department: $80,000; credit WIP—Forming Department: $80,000

Debit WIP—Forming Department: $80,000; Credit WIP—Mixing Department: $80,000

Debit WIP—Forming Department: $10,000; Credit WIP—Mixing Department: $10,000

Debit WIP—Mixing Department: $10,000; credit WIP—Forming Department: $10,000
0%
In the second processing department, the percentage of completion assigned to units transferred in is always:

0%.

100%.

dependent on the percentage of completion at month end.

None of the listed choices are correct.
Production Cost Report
The schedule used to summarize the entire five-step process costing procedure is called a

processing report.

process costing schedule.

production cost report.

job cost record.
$16
A company sells each unit of its product for $90. The final department showed the following costs per equivalent unit: $40 transferred-in, $21 direct materials, $13 conversion. What is the gross profit on each unit sold by the company?

$16

$56

$74

$90
Curvilinear Costs
A cost behavior that is not linear (not a straight line).
Relevant Range
The range of activity within which assumptions about variable and fixed cost behavior are valid.
Step Costs
a cost behavior that is fixed over a small range of activity and then jumps to a different fixed level with moderate changes in volume
Equivalent Units
Express the amount of work done during a period in terms of fully completed units of output.
the origin and slopes upward.
A graph of a variable cost starts at

any point on the y-axis and is horizontal.

any point on the y-axis and slopes upward.

the origin and slopes upward.

the origin and is horizontal.
Fixed cost per unit decreases when volume increases.
Which of the following is true?

Total fixed costs increase when volume increases.

Total fixed costs decrease when volume increases.

Fixed cost per unit increases when volume increases.

Fixed cost per unit decreases when volume increases.
variable cost per unit
In the cost equation y = vx + f, the term "v" stands for

total cost.

variable cost per unit.

fixed cost.

total variable cost.
$4,500
If x = 35, v = $100, and f = $1,000, then total costs equal

$4,500.

$1,100.

$100.

$3,500.
Changes in the variable costs per unit often occur within a given relevant range.
Which of the following is false?

Step costs are fixed over small ranges of activity.

Curvilinear costs can be approximated as mixed costs or broken into smaller relevant ranges for cost prediction purposes.

Changes in the variable costs per unit often occur within a given relevant range.

The concept of relevant range is applicable to both fixed and variable costs.
Data points falling in a linear pattern suggest a weak relationship between cost and volume.
Which of the following is false?

When performing account analysis, managers use their judgment to classify cost behavior.

Scatterplots should be prepared to help identify outliers.

When creating a scatterplot, volume should be plotted on the x-axis while cost should be plotted on the y-axis.

Data points falling in a linear pattern suggest a weak relationship between cost and volume.
Selection of the high and low data points should be based on cost, not volume.
Which of the following is false about the high-low method?

It yields an equation for a straight line connecting the high and low data points.

Selection of the high and low data points should be based on cost, not volume.

The slope found from the method represents the variable cost per unit.

It is based on only two data points.
It treats fixed MOH costs as period costs, rather than as product costs.
Which of the following is true regarding variable costing?

It treats variable MOH costs as period costs, rather than as product costs.

It is allowed by GAAP for external reporting purposes.

It treats fixed MOH costs as period costs, rather than as product costs.

It is allowed by the IRS for tax preparation.
The operating income of manufacturers will always be the same, regardless of whether variable or absorption costing is used.
Which of the following is false?

The operating income of manufacturers will always be the same, regardless of whether variable or absorption costing is used.

The contribution margin is equal to sales revenue minus variable expenses.

A contribution margin income statement is organized by cost behavior.

Under absorption costing, the fluctuation of inventory levels will impact operating income, regardless of sales revenue.
Cost-Volume-Profit Analysis
expresses the relationships among costs, volume, and profit or loss
sales revenue minus variable expenses.
The contribution margin is

sales revenue minus fixed expenses.

sales revenue minus cost of goods sold.

sales revenue minus variable expenses.

sales revenue minus operating expenses.
contribution margin divided by sales revenue.
The contribution margin ratio is

contribution margin divided by variable expenses.

sales revenue divided by contribution margin.

contribution margin divided by sales revenue.

fixed expenses divided by variable expenses.
(Fixed expenses + Operating income) ÷ Contribution margin per unit.
The formula to find the breakeven point or a target profit volume in terms of number of units that need to be sold is

(Fixed expenses + Variable expenses) ÷ Sales revenue.

(Fixed expenses + Operating income) ÷ Sales revenue.

(Fixed expenses + Variable expenses) ÷ Contribution margin per unit.

(Fixed expenses + Operating income) ÷ Contribution margin per unit.
indifference point
The volume of sales at which a company would be indifferent between alternative cost structures because they would result in the same total cost
the intersection of the total revenue line and the total expense line.
On a CVP graph, the breakeven point is

the intersection of the total revenue line and the fixed expense line.

the intersection of the total revenue line and the total expense line.

the area between the variable expense line and the fixed expense line.

the area between the total revenue line and the total expense line.
its contribution margin ratio will decrease.
All else being equal, if a company's variable expenses increase,

its breakeven point will decrease.

there will be no effect on the breakeven point.

its contribution margin ratio will increase.

its contribution margin ratio will decrease.
decrease the sales needed to break even.
All else being equal, a decrease in a company's fixed expenses will:

increase the sales needed to break even.

increase the contribution margin.

decrease the sales needed to break even.

decrease the contribution margin.
The breakeven point is dependent on sales mix assumptions.
Which of the following is true regarding a company that offers more than one product?

Breakeven should be found using a simple average contribution margin.

Breakeven should be found for each product individually.

It has one unique breakeven point.

The breakeven point is dependent on sales mix assumptions.
has relatively more variable costs than fixed costs.
A company with a low operating leverage

has relatively more risk than a company with high operating leverage.

has relatively more variable costs than fixed costs.

has relatively more fixed costs than variable costs.

has an equal proportion of fixed and variable costs.
contribution margin ÷ operating income.
For a given level of sales, a company's operating leverage is defined as

contribution margin ÷ operating income.

sales revenue ÷ contribution margin.

contribution margin ÷ sales.

operating income ÷ contribution margin.
The indifference point is the point where total revenues equal total expenses.
Which of the following is false regarding choosing between two cost structures:

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

The indifference point is the point at which costs under two options are the same.

Choose the higher operating leverage option when sales volume is expected to be higher than the indifference point.

Choose the lower operating leverage option when sales volume is expected to be lower than the indifference point.
Price-Takers
Product lacks uniqueness, not a brand name, heavy competition, pricing approach emphasizes target costing
Price-Setters
product is unique, branded, less competition, pricing approach emphasizes cost-plus pricing
Segment Margin
The income resulting from subtracting only the direct fixed costs of a product line from its contribution margin. The segment margin contains no allocation of common fixed costs.
Relevant information is always financial in nature.
Which of the following is false?

Relevant information is always financial in nature.

Relevant information always regards the future.

Sunk costs are never relevant to a decision.

Relevant information always differs among alternatives.
Both of the above
Keys to making short-term decisions include which of the following?

Using a contribution margin approach that separates variable costs from fixed costs

Focusing on relevant revenues, costs, and profits

Both of the above

None of the above
Their pricing approach emphasizes cost-plus pricing.
Which is true of price-setters?

Their pricing approach emphasizes cost-plus pricing.

Their pricing approach emphasizes target costing.

Their products lack uniqueness.

They are in highly competitive markets.
All of the listed choices should be considered in special order decisions.
Which of the following should be considered for special order decisions?

Whether the special order will affect regular sales in the long run

Whether the special price will be high enough to cover incremental costs of filling the order

Whether excess capacity exists

All of the listed choices should be considered in special order decisions.
Revenue minus desired profit
The formula for arriving at target cost is which of the following?

Cost minus actual profit

Revenue minus variable cost

Revenue minus desired profit

Revenue minus actual profit
Unavoidable fixed costs related to the product
Which of the following is not relevant when deciding whether or not to discontinue a product?

Unavoidable fixed costs related to the product

Avoidable fixed costs related to the product

The product's contribution margin

The effect of discontinuation on the sales of the company's other products.
segment's contribution margin minus direct fixed costs.
A segment margin is the

segment's contribution margin minus all fixed costs.

segment's contribution margin minus allocated fixed costs.

same as the segment's contribution margin.

segment's contribution margin minus direct fixed costs.
The products' contribution margin per unit of constraint
When resources are constrained, which of the following should be used to guide product mix decisions?

The products' gross margin per unit of constraint

The products' contribution margin per unit of constraint

The products' contribution margin

The products' gross margin
Outsourcing refers to having work performed overseas.
Which of the following is false?

Outsourcing decisions should take into consideration the intended use of freed capacity.

Outsourcing refers to having work performed overseas.

Outsourcing decisions are often referred to as "make-or-buy" decisions.

Contract manufacturers are manufacturers that make products for other companies.
Costs incurred up to the "sell as is" decision point.
In making "sell as is" decisions, companies should consider all of the following EXCEPT for:

Incremental costs that would be incurred by processing further.

Costs incurred up to the "sell as is" decision point.

Incremental revenues that would be earned by processing further.

All of the above should be considered.
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