Accounting Exam #2 (Ch. 16, 17, 18, 19, 20, and 21)

Which of the following is not a necessary step in preparing a production cost report?

Prepare the job order cost sheet

In a process cost system, a production cost report is prepared

for each processing department

A production cost report

will show quantity and cost data for a production department

The type of cost accounting system that focuses on the process involved in mass-producing products that are very similar in nature is called

process costing

Which of the following is a true statement about process cost system

In process cost systems, costs are accumulated but not assigned

Which of the following manufacturing cost components are incurred in a process cost system

All of the answer choices are correct

The basic similarities between job order cost and process cost systems include all of the following except the

point at which costs are totaled

When manufacturing overhead costs are assigned to production in a process cost system, they are debited to

a work in process inventory account

A primary driver of overhead costs in continuous manufacturing operations is

machine hours

Equivalent units of production are calculated by

multiplying the percentage of work done by the physical units

A production cost report is an internal document for management that shows

production quantity and cost data for a production department

Activity-based costing is used in

Service industries - Yes; manufacturing industries - Yes

When assigning costs to products and services, companies use estimates to assign

overhead costs

which of the following is not typical of traditional costing systems?

use of multiple cost drivers to allocate overhead

In a traditional costing system, overhead is generally applied based on the

direct labor

An activity that has a direct cause-effect relationship with the resources consumed is a

cost driver

Which best describes the flow of overhead costs in an activity-based costing system?

overhead costs - activity cost pools - cost drivers - products

The costs that are easiest to trace directly to products are

direct materials and direct labor

Often the most difficult part of computing accurate unit costs is determining the proper amount of ___ to assign to each product, service, or job.

overhead

Predetermined overhead rates in traditional costing are often based on

direct labor cost for job order costing and machine hours for process costing

Activity-based costing

allocates overhead to activity cost pools and then assigns the activity cost pools to products and services by means of cost drivers

The first step in activity-based costing is to

identify and classify the activities involved in the manufacture of specific products, and allocate overhead costs to pools

To assign overhead costs to each products, the company

multiplies the activity-based overhead rates per cost driver by the number of cost drivers per product

Assigning overhead using ABC will usually

increase the cost per unit for low volume products as compared to a traditional overhead allocation

Companies that switch to ABC often find that they have been

All of the answer choices are correct

ABC is particularly useful when overhead costs are

a significant portion of total costs

Variable costs per unit

remains the same as the level of activity changes

changes in the level of activity will cause fixed costs to

stay the same at any level of activity

The relevant range of the activity index is the activity level where

a company expects to operate

A variable cost is a cost that

varies in total in proportion to changes in the level of activity

A cost that remains constant per unit at various levels of activity is a

variable cost

An increase in the level of activity will have the following effects on unit costs for variable and fixed costs

Unit variable cost remains constant - Unit fixed cost decreases

The increased use of automation and decreased use of labor in companies has caused a trend towards an increase in

fixed costs and a decrease in variable costs

Cost behavior analysis applies to

all entities

If a farm increases its activity level

some costs will change while others will remain constant

A knowledge of cost behavior helps management plan operations and

decide between alternative courses of action

Companies can classify the behavior of costs in response to changes in activity levels in three categories

variable, fixed, or mixed

Changes in activity levels have a ___ effect on fixed costs per unit

inverse

Which of the following is not a fixed cost

Direct materials

The range over which a company expects to operate is known as the

relevant range

When graphed, fixed costs, within the relevant range, resemble a

straight line

The CVP income statement classifies costs as

variable or fixed and computes a contribution margin

CVP analysis

is the study of the effects of changes in costs and volume on a company’s profit

When a company is in its early stages of operation, its primary goal is to

achieve a positive net income

The margin of safety tells a company

how far sales can drop before it will be operating at a loss

The CVP income statement classifies costs

as variable or fixed and computes contribution margin

Contribution margin is the amount of revenue remaining after deducting

variable costs

In a CVP income statement, cost of goods sold is generally

broken down into its variable and fixed cost components

In a CVP income statement, selling expenses are generally

broken down into its variable and fixed costs

The contribution margin ratio is

contribution margin divided by sales dollars

The required sales in units to achieve a target net income is

(fixed cost + target net income) divided by unit contribution margin

In analyzing sales mix, net income can be increased

with a shift from low-margin sales to high-margin sales

Cost structure

refers to the relative proportion of fixed versus variable costs that a company incurs

One strategy to reduce fixed costs would be

outsourcing production

Only direct materials, direct labor, and variable manufacturing overhead costs are considered product costs when using

variable costing

When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using

absorption costing

Which of the following would generally affect a make-or-buy decision?

Direct labor

Sunk costs

are irrelevant because they cannot be avoided by any subsequent decision

When deciding whether to eliminate an unprofitable segment, the incremental analysis must consider

the contribution margin of the unprofitable segment

Decision-making involves choosing among

alternative courses of action

The decision-making process starts with the step to identify the problem and assign responsibility, and the second step is to

Determine and evaluate possible courses of action

Which of the following is always a relevant cost

Opportunity cost

Costs that will differ between alternative courses of action and influence the outcome of a decision are called

relevant costs

A revenue that differs between alternative courses of action and makes a difference in decision making is called an

incremental revenue

which of the following is an irrelevant cost

A sunk cost

Relevant costs are always

avoidable costs

In incremental analysis,

both costs and revenues may be analyzed

In the analysis concerning the acceptance of a special order, which costs are relevant if the company is operating at full capacity

Variable costs and mixed costs

Which of the following does not affect a make or buy decision

incremental revenue

An opportunity cost

lost potential benefit that could have been obtained by following an alternative course of action

Factors that can affect pricing decisions include all of the following

Environment, cost considerations, and pricing objectives

In most cases, prices are set by the

competitive market

A company must price its product to cover its costs and earn a reasonable profit in

the long run

Prices are set by the competitive market when

the product is not easily distinguished from competing products

All of the following are factors that can affect pricing decisions

Demand, cost considerations, and environment

Companies that sell products whose prices are set by market forces are called

price takers

In which of the following situations would a company be unable to set the prices of its products?

The product is not easily differentiated from competing products

The calculation to determine target cost is

market price - desired profit

In cost-plus pricing, the target selling price is computed as

total unit cost + desired ROI per unit

In time-and-material pricing, a material loading charge covers all of the following except

desired profit margin

The first step for time-and-material pricing is to calculate the

labor charges per hour

If a cost-based transfer price is used

The price is based on the costs incurred by the division producing the goods

One problem with a cost-based transfer price is that it does not

provide adequate incentive for the selling division to control costs

Which approach is the most commonly used method to establish a transfer price

The cost-based approach

Under the negotiated transfer pricing approach, the minimum transfer price is established by the

selling division