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Study Resources (Accounting)

Problems 1.It is important to understand the elements of an activity-based costing (ABC) system. Required: Enter the identifying letters in the blanks below to indicate the term that best matches each description. A Activity F Facility-level activities B Activity-based costing G Practical capacity C Activity-based management H Product-/customer-level activities D Batch-level activities I Product planning E Business process J Profit margin a._____ Activities that are required to sustain the business. b._____ Using information from ABC systems to.
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6.When will the materials price variance be unfavorable? Does an unfavorable materials price variance necessarily indicate a control problem? Explain why or why not. 7.When will the materials quantity variance be unfavorable? Might an unfavorable materials quantity variance be related to other variances, such as the materials price variance and the.
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MULTIPLE CHOICE 21.Which of the following is not an example of a long-term decision? A.Changing product mix. B.Dropping products. C.Expanding operations. D.Purchasing inventory. E.All of the above are examples of long-term decisions. 22.The allocation rate is calculated by: A.Dividing the costs in the cost pool by the denominator volume. B.Dividing the costs in the cost pool by the overhead.
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Exercises 1.Located in Madras, India, Shah Company manufactures and sells leather garments in India and in Europe. For the most recent year of operations, Shah sold 20,000 garments each in Europe and India. Each garment sold in India consumes 4 hours of labor, while each garment sold in Europe consumes 7.
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56.Which of the following is not a common form of a responsibility center? a.Cost Center. b.Investment Center c.Revenue Center. d.Profit Center. e.All of the above are common forms of responsibility centers. LO4 – C  57.In relation to budgeting, which of the following does not depend on management style? a.The quality of information obtained. b.The delegation of decision rights. c.The.
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  41.If a company produces more units than it sells in a period, net operating income under variable costing will: A.Be the same as it would be under absorption costing B.Be less than it would be under absorption costing C.Be equal to the net operating income using absorption costing plus selling and administrative costs D.Be.
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Short Essay 1.Each of us regularly uses budgets and benchmarks to evaluate how we are doing or what we could do to improve. Can you list three examples from everyday life? 2.Some argue that making the master budget hard to achieve or “tight” can help eliminate waste and make organizations more efficient..
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2.The Glass Vessel Company has established the following budget for producing one of its hand-blown vases: Materials (silica) 2 pounds @ 1.25 per pound Labor 1.5 hours @ $15.00 per hour In March of the most recent year, Glass Vessel produced 300 vases using 650 pounds of materials. Glass Vessel purchased the 650.
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3.The Fitness Center sells three types of monthly memberships, Individual ($100), Couples ($175) and Family ($250).  In addition, the Center sells one-week passes for $35 each and lifetime individual memberships for $5,000 each.  The Center expects to sell the following number of memberships next year. Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Individual 25 10 12 20   67 Couple 15  .
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31.Pizzeria Gallery specializes in pizza making and delivery.  The company uses activity-based costing for all overhead costs using the following data: Overhead costs: Wages$48,000 Administrative$62,000 Total$110,000 Resources are consumed as follows: Activity Cost Pools Pizza MakingDeliveryOther Wages & Salaries65%20%15% Administrative20%30%50% Activity for the year is: Activity Cost PoolActivity Pizza Making19,000 orders Delivery17,000 deliveries The total overhead cost per delivery according to the activity-based costing.
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  51.In the month of December the Valhalla Company produced 28,000 units and sold 30,000 units.  Under absorption costing: A.Fixed manufacturing costs will be “released” from inventory and therefore net operating income will be lower than it would under variable costing B.Fixed selling & administrative costs will be “released” from inventory and therefore.
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5.“Budgets are only as good as the forecasts upon which they are based.” In some industries, it is very difficult to forecast demand accurately, while in other industries demand conditions are relatively stable. Discuss the role of budgeting in these two settings. 6.Sales forecasts and overhead estimates are the two activities.
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MULTIPLE CHOICE 29.Without a well-conceived plan against which to compare actual performance: A.It is difficult to determine how a company is doing. B.It is difficult to determine what a company could do to improve. C.A company will not be able to make a profit. D. Both A and B. E.A, B, and C. 30.The starting point for.
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  59.A company may experience a favorable labor rate variance but an unfavorable labor efficiency variance when: A.Sales lagged behind the budgeted amounts of the sales department. B.There were breakdowns in machinery. C.The product mix changed during the period. D.The company experienced a high amount of turnover in its workforce. 60.A spending variance results when.
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Short Answer 1.What is a budget? 2.What are the three reasons firms use budgets? 3.What are: (a) an operating budget, (b) a financial budget? 4.What is the natural starting point for the budgeting process? Why? 5.What budget typically is prepared immediately after the revenue budget? 6.What budgets follow from the production budget? 7.What equation do firms use.
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8.Under variable costing, how does sales volume affect the amount of fixed manufacturing overhead expensed in the income statement? 9.Under absorption costing, how does sales volume affect the amount of fixed manufacturing overhead expensed in the income statement? 10.When will income reported under variable costing be the same as income reported under.
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MULTIPLE CHOICE 21.Which of the following is not a step in designing a product costing system? A.Determine how to form cost pools. B.Identify which cost pools to allocate. C.Identify the cost driver to use for allocating each cost pool. D.Determine the appropriate denominator volume of each cost driver to calculate allocation rates. E.All of the above.
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Problems 1.Betty’s Boutique sells hand-crafted jewelry.  Betty sells her jewelry for $40, a 300% markup.  Her annual sales range from $30,000 to $40,000, with sales for the current year expected to be $34,000.  Fixed costs generally are $17,000.   Required: a.Betty anticipates sales of $40,000 next year.  Calculate her expected profit for the current.
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11.Some experts argue that budgets have to be “loose” and “flexible” for companies that are in their growth phase. Other experts believe that good planning and control through well-formulated budgets can never hurt. Which line of reasoning do you agree with? Are these two arguments necessarily inconsistent? 12.Participative, or bottom-up, budgeting.
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Short Answer 1.What is the appropriate measure of value for long-term decisions? 2.What is the difference between a contribution margin and a profit margin? 3.What are the two approaches for estimating the controllable cost of capacity resources over the long term? 4.Describe the direct estimation method for estimating controllable capacity costs. List one advantage.
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  61.Why do managers care about the costs allocated to their individual departments? A.Managers’ performance evaluations frequently depend on their unit’s performance more than overall firm performance. B.The cost allocated is an integral part of the department’s reported profit. C.Carefully chosen allocation methods can induce desired behavior. D.Carefully chosen allocation methods can dissuade undesired behavior. E.All.
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6.Suppose a firm produces two products, both of which are sold in competitive markets. Are there any incentives to be strategic when allocating costs between these two products? 7.Firms that allocate costs based on head count motivate their managers to reduce the number of employees. What kind of dysfunctional and profit.
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  11.A budget reconciliation is a report that uses variances to reconcile the difference between master budget profit and actual profit. 12.If a materials input price is higher than budgeted, the result is an unfavorable materials efficiency variance. 13.Small variances probably indicate random factors at work while large variances could signal a permanent.
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Problems 1.Managers must understand the roles budgets serve in organizations. Required: Enter the identifying letters in the blanks below to indicate the term that best matches each description. A Budget F Cost center B Financial budget G Responsibility accounting C Operating budget H Investment center D Master budget I Bottom-up budgeting E Centralized decision J Responsibility center a._____ An organizational setting where a few top managers make all the decisions. b._____ A plan for using limited resources. c._____ Organizational.
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11.ABC provides useful information for product planning by providing accurate estimates of profit margins. 12.LO3 – True An ABC system may be used to measure the profitability or profit potential of a market segment, but not an individual customer. 13.A curve that plots customer profitability, after ranking customers in order of their.
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Problems 1.Fancy Feast Bakery makes cakes for special occasions.  Fancy Feast estimates the following revenue and costs for the upcoming month. Expected sales 300 cakes @ $20 per cake Expected cost of Ingredients $4 per cake Expected labor costs $20 per hour Estimated labor hours required ½ hour per cake Estimated variable overhead $1 per baker hour Estimated total fixed costs:   .
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11.What is the fixed cost spending variance? 12.Each variable cost variance can be decomposed into two variances. What are these variances? 13.What is an input price variance? 14.What is an input quantity variance? 15.What is the function of a budget-reconciliation report? 16.What are the three primary reasons variances occur? 17.What are the three main rules to.
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Short Essays 1.Many firms dedicate separate production facilities to each of their product lines. What are some of the advantages and disadvantages of this approach from the perspective of allocating costs for decision making? 2.Suppose a firm currently makes three products using the same capacity resources and that one of the products.
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  49.PVC Pro produces PVC pipe in 12 foot lengths. The following information was provided concerning its labor and materials  Actual Data Produced12,200 units Materials used4,650 lbs. @ $7.00 per pound Labor worked7,450 hrs. costing $80,460 Budget Data Budgeted units 12,000 units Budgeted materials per pipe0.40 lb. @ $7.10 per pound Budgeted labor per pipe0.60 hours @ $11.00.
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3.Bonner Construction Company is currently working on two projects that have considerable overlap in the use of equipment and materials.  For example, Bonner is renting a crane with a minimum lease time of one day and will be able to use the crane on both projects during the one-day period. .
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  11.An example of allocations to justify costs and reimbursements is when government entities contract to compensate their suppliers on a fixed negotiated contract amount. 12.Suppliers often prefer cost-plus contracts when there is uncertainty about the final cost or project success, as it allows them to share the risk of cost overruns.
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Short Answer 1.For many organizations, what is the benchmark for evaluating actual performance? 2.What is a master budget? 3.What is a variance? 4.What does it mean when a variance is favorable?  What does it mean when a variance is unfavorable? 5.What is the total profit variance? 6.What two subsidiary variances make up the total profit variance? 7.What.
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61.As to customer-level profit analysis, batch-level costs relate to: A.Customers’ order volume. B.Tailoring a product to customers’ desires. C.Customers’ frequency of ordering or order size. D.Warehousing of customers’ desires. E.All of the above are batch-level costs. 62.Which of the following is not a characteristic of low-profit customers? A.Small order size. B.Demand immediate deliveries. C.Predictable ordering patterns. D.Frequent sales force contact. E.All.
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  31.The following information is available for the Downtown Furniture Company which produces two types of tables. OakCherryTotal Sales volume (units)500300800 Revenue$80,000$78,000$158,000 Variable Costs Direct materials$5,000$7,000$12,000 Direct labor$17,000$22,000$39,000 Contribution Margin$58,000$49,000$107,000 Fixed Costs Manufacturing$25,500 Administrative$31,000 Profit Before Tax$50,500 A.$15,500 B.$18,600 C.$31,000 D.$11,625 32.The following information is available for the Downtown Furniture Company which produces two types of tables. OakCherryTotal Sales volume (units)500300800 Revenue$80,000$78,000$158,000 Variable Costs Direct materials$5,000 $8,000 $13,000 Direct labor$17,000$21,000$38,000 Contribution Margin$58,000$49,000$107,000 Fixed Costs Manufacturing$40,000 Administrative$33,000 Profit Before.
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  21.Organizations always compute the materials price variance using the actual quantity of materials used. 22.The materials price variance helps reconcile actual profit with master budget profit. 23.A favorable or unfavorable sales volume variance could arise due to a change in the market as a whole or the firm’s share of the market. 24.The.
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8.Why is the cash budget important? 9.What are the three main components of the cash budget? 10.Why is a firm’s credit policy important for translating the revenue budget into the budgeted inflows of cash? 11.What are the four types of cash outflows from operations? 12.What are some special items that might affect a firm’s.
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Short Answer 1.What is the definition of unit profit margin? 2.What are the four key steps in designing a product costing system? 3.What is a business process? How are activities and business processes related? 4.What is the basis that ABC systems use to form cost pools? 5.What is the primary criterion that we should use.
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3.Assume that you are a franchisee of a fast-food chain, “Pita Palace,” that serves made-to-order pitas. The menu, prices, and decor are dictated by the national office; further, you are required to purchase all of your supplies through a specified distributor. Your primary responsibility is to ensure adequate staffing and.
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TRUE/FALSE 1.Changing a product mix is an example of a short-term decision. 2.Capacity costs are controllable over the long-term. 3.While profit margin is the appropriate measure of value for short-term decisions, contribution margin is the appropriate measure for long-term decisions. 4.Some firms refer to the overhead rate as the burden because they charge, or.
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8.What is cross-subsidization? 9.List three ways in which a company can improve profitability using ABC data. 10.What are the two key customer-planning decisions that companies face? 11.What are the differences between product-level profit analysis and customer-level profit analysis? 12.List five characteristics of customers that are “high cost-to-serve” customers. List five characteristics of customers that.
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TRUE/FALSE 1.If sales volume exceeds expectations, actual profit will always be higher than budgeted profit. 2.Variance analysis may be performed to isolate the profit impact of individual input and output factors. 3.Variance analysis is a technique used for determining the profit effect due to differences between the actual and budgeted size of the.
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TRUE/FALSE 1.Profit margin equals a product’s gross margin less the cost of capacity resources needed to support its production. 2.Profit margin is the appropriate measure for evaluating long-term profitability. 3.When allocating capacity costs to products, controllable and non-controllable cost pools need to be allocated to cost objects. 4.Activity-based costing (ABC) is an approach to.
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51.When implementing activity-based costing, by how much will profit before taxes differ compared to other cost allocation systems? A. The difference depends on which other system is used. B. ABC systems will report higher profit than other systems. C. ABC systems will report lower profit than other systems. D. No difference will.
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Exercises 1.Premium Windows makes one type of standard windows for residential buildings. Premium desires to end March with 2,500 windows in stock. Premium’s inventory on March 1 is 1,750 windows, and its budgeted production for the month is 8,000 windows. Each window sells for $60. Required: Prepare Premium’s revenue budget for March. 2.The following.
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Exercises 1.Garnet’s Gym is a fitness and aerobic center located in Atlanta, Georgia. The following table reports Garnet’s master budget and actual results for the most recent year:    Master Budget Actual Results Membership fee (per member) $500 $550 Number of members 5,000 4,000 Variable cost (per member) $200 $200 Fixed costs $1,200,000 $1,200,000   With regard to the discrepancies between the budgeted and actual membership fee.
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3.Piney Creek Manufacturing Company produces high-end extreme weather tents.  Piney Creek has established the following budget for producing its XWT model for the most recent month.  Master Budget Actual Results Number of tents sold      50      60 Sales price per tent      $650      $635 Variable cost per tent      $250      $240 Fixed costs      $10,000      $10,000 Required: a.What is Piney Creek’s.
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41.What is an activity-based costing system? A. An approach to determining product costs B. An approach that eliminates all non-value-adding costs C. An approach that allocates all costs that can be directly traced to products or services D. An approach that improves the efficiency of organizational processes 42.Which of the following lists best.
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  39.Variance analysis is an important tool because: A.It helps management determine where bottlenecks in the production process occurred B.It helps management determine better pricing strategies C.It helps management determine why actual profits varied from budgeted profits D.It helps management determine which department operated most efficiently. 40.A favorable materials price variance will occur when: A.Actual costs of.
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