back testing acc212

ACC 212Avi Rushinek

Backtesting1.01. Selling costs can be either direct or indirect costs.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #1Learning Objective: 02-02 Identify and give examples of each of the

three basic manufacturing cost categories.

Qz2.0 ============================================End

Qz2a.0 ================================= Start

1. The R2 (i.e., R-squared) is a measure of the goodness-of-fit in

least-squares regression.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 02A... #1Learning Objective: 02A-08 Analyze a mixed cost using a scattergraph

plot and the least-squares regression method.

2. When analyzing a mixed cost, you should always plot the data in

a scattergraph, but it is particularly important to check the data

visually on a scattergraph when the R2 from a least squares regression

is low. A quick look at the scattergraph can reveal that there is little

relation between the cost and the activity or that the relation is

something other than a simple straight line.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 02A... #2Learning Objective: 02A-08 Analyze a mixed cost using a scattergraph

plot and the least-squares regression method.

Qz2a.0 ================================= Start

1. The use of a predetermined overhead rate in a job-order cost

system makes it possible to compute the total cost of a job before

production is begun. True False

FALSE AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 03 #1Learning Objective: 03-01 Compute a predetermined overhead rate. 2. If direct labor-hours is used as the allocation base in a job-

order costing system, but overhead costs are not caused by direct-labor

hours, then jobs with high direct labor requirements will tend to be

undercosted relative to jobs with low direct labor requirements. True False

FALSE AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 03 #2Learning Objective: 03-02 Apply overhead cost to jobs using a

predetermined overhead rate.

Qz2a.0 ================================= End

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1. When the predetermined overhead rate is based on the level of

activity at capacity, underapplied manufacturing overhead may be called

the Cost of Unused Capacity and treated as a period expense.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook- Appendix 03B... #1Learning Objective: 03B-09 Understand the implications of basing the

predetermined overhead rate on activity at capacity rather than on

estimated activity for the period.

Qz3a.0 ============================================End

Qz4.0 ============================================Start

1. When materials are purchased in a process costing system, a

materials account is debited with the cost of the materials. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 04 #1Learning Objective: 04-01 Record the flow of materials; labor; and

overhead through a process costing system.

Qz4.0 ============================================End

Qz4.a ============================================Start

1. The equivalent units of production will be the same under the

weighted-average and the FIFO method if there is no ending work in

process inventory. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTEXTbOOK - Appendix 04A... #1Learning Objective: 04-02 Compute the equivalent units of production

using the weighted-average method.Learning Objective: 04A-06 Compute the equivalent units of production

using the FIFO method.

Backtesting 2.01. Selling costs can be either direct or indirect costs.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #1Learning Objective: 02-02 Identify and give examples of each of the three basic manufacturing cost categories.

2. A direct cost is a cost that cannot be easily traced to the particular cost object under consideration.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #2Learning Objective: 02-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.

3. Property taxes and insurance premiums paid on a factory building are examples of period costs.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 02 #3Learning Objective: 02-03 Understand cost classifications used to prepare financial statements: product costs and period costs.

4. Conversion cost equals product cost less direct labor cost.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: AnalyzeDifficulty: 3 HardTextBook - Chapter 02 #4Learning Objective: 02-03 Understand cost classifications used to prepare financial statements: product costs and period costs.

5. Thread that is used in the production of mattresses is an indirect material that is therefore classified as manufacturing overhead.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #5Learning Objective: 02-02 Identify and give examples of each of the three basic manufacturing cost categories.

6. Direct labor is a part of prime cost, but not conversion cost.

True False

TRUE


7. Conversion cost is the sum of direct labor cost and direct materials cost.

True False

FALSE


8. Direct material costs are generally fixed costs.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyTextBook - Chapter 02 #8Learning Objective: 02-02 Identify and give examples of each of the three basic manufacturing cost categories.

BACKTESTING 2.330. The contribution format is widely used for preparing external financial statements.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 02 #30Learning Objective: 02-06 Prepare income statements for a merchandising company using the traditional and contribution formats.

31. Contribution margin equals revenue minus all fixed costs.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #31Learning Objective: 02-06 Prepare income statements for a merchandising company using the traditional and contribution formats.

32. The potential benefit that is given up when one alternative is selected over another is called an opportunity cost.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #32Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.

33. A cost that differs from one month to another is known as a differential cost.

True False

FALSE


34. The nursing station on the fourth floor of Central Hospital is responsible for the care of orthopedic surgery patients. The costs of prescription drugs administered by the nursing station to patients should be classified as:

A. direct patient costs.B. indirect patient costs.C. overhead costs of the nursing station.D. period costs of the hospital.A

AACSB: Reflective Thinking

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 02 #34Learning Objective: 02-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.Learning Objective: 02-03 Understand cost classifications used to prepare financial statements: product costs and period costs.

35. All of the following costs would be found in a company's accounting records except:

A. sunk cost.B. opportunity cost.C. indirect costs.D. direct costs.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 02 #35Learning Objective: 02-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.

36. The costs of the Accounting Department at Central Hospital would be considered by the Surgery Department to be:

A. direct costs.B. indirect costs.C. incremental costs.D. opportunity costs.B

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 02 #36Learning Objective: 02-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.B

37. In a manufacturing company, direct labor costs combined with direct materials costs are known as:

A. period costs.B. conversion costs.C. prime costs.

D. opportunity costs.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #38Learning Objective: 02-03 Understand cost classifications used to prepare financial statements: product costs and period costs.C

38. Which of the following would most likely be included as part of manufacturing overhead in the production of a wooden table?

A. The amount paid to the individual who stains the table.B. The commission paid to the salesperson who sold the table.C. The cost of glue used in the table.D. The cost of the wood used in the table.

Difficulty: 2 MediumTextBook - Chapter 02 #40Learning Objective: 02-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.Learning Objective: 02-02 Identify and give examples of each of the three basic manufacturing cost categories.C

39. Indirect labor is a(n):

A. Prime cost.B. Conversion cost.C. Period cost.D. Opportunity cost.

B

BACKTESTING 2.330. The contribution format is widely used for preparing external financial statements.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 02 #30Learning Objective: 02-06 Prepare income statements for a merchandising company using the traditional and contribution formats.

31. Contribution margin equals revenue minus all fixed costs.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #31Learning Objective: 02-06 Prepare income statements for a merchandising company using the traditional and contribution formats.

32. The potential benefit that is given up when one alternative is selected over another is called an opportunity cost.

True False

TRUE


33. A cost that differs from one month to another is known as a differential cost.

True False

FALSE


34. The nursing station on the fourth floor of Central Hospital is responsible for the care of orthopedic surgery patients. The costs of prescription drugs administered by the nursing station to patients should be classified as:

A. direct patient costs.B. indirect patient costs.C. overhead costs of the nursing station.D. period costs of the hospital.A

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 02 #34Learning Objective: 02-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.Learning Objective: 02-03 Understand cost classifications used to prepare financial statements: product costs and period costs.

35. All of the following costs would be found in a company's accounting records except:

A. sunk cost.B. opportunity cost.C. indirect costs.D. direct costs.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 02 #35Learning Objective: 02-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.

36. The costs of the Accounting Department at Central Hospital would be considered by the Surgery Department to be:

A. direct costs.B. indirect costs.C. incremental costs.D. opportunity costs.B

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 02 #36Learning Objective: 02-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.B

37. In a manufacturing company, direct labor costs combined with direct materials costs are known as:

A. period costs.B. conversion costs.C. prime costs.D. opportunity costs.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #38Learning Objective: 02-03 Understand cost classifications used to prepare financial statements: product costs and period costs.C

38. Which of the following would most likely be included as part of manufacturing overhead in the production of a wooden table?

A. The amount paid to the individual who stains the table.B. The commission paid to the salesperson who sold the table.C. The cost of glue used in the table.D. The cost of the wood used in the table.

Difficulty: 2 MediumTextBook - Chapter 02 #40Learning Objective: 02-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.Learning Objective: 02-02 Identify and give examples of each of the three basic manufacturing cost categories.C

39. Indirect labor is a(n):

A. Prime cost.B. Conversion cost.C. Period cost.D. Opportunity cost.

B

BACKTESTING 2.440. All of the following would be classified as product costs except:

A. property taxes on production equipment.B. insurance on factory machinery.C. salaries of the marketing staff.D. wages of machine operators.

Blooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #44Learning Objective: 02-03 Understand cost classifications used to prepare financial statements: product costs and period costs.

C

41. Inventoriable costs are also known as:

A. variable costs.B. conversion costs.C. product costs.D. fixed costs.

TextBook - Chapter 02 #47Learning Objective: 02-03 Understand cost classifications used to prepare financial statements: product costs and period costs.

C

42. Fresh Wreath Corporation manufactures wreaths according to customer specifications and ships them to customers using United Parcel Service (UPS). Which two terms below describe the cost of shipping these wreaths?

A. variable cost and product costB. variable cost and period costC. fixed cost and product costD. fixed cost and period cost

Difficulty: 2 MediumTextBook - Chapter 02 #48Learning Objective: 02-03 Understand cost classifications used to prepare financial statements: product costs and period costs.Learning Objective: 02-04 Understand cost classifications used to predict cost behavior: variable costs; fixed costs; and mixed costs.

B

43. If the level of activity increases within the relevant range:

A. variable cost per unit and total fixed costs also increase.B. fixed cost per unit and total variable cost also increase.C. total cost will increase and fixed cost per unit will decrease.D. variable cost per unit and total cost also increase.

Difficulty: 2 MediumTextBook - Chapter 02 #49Learning Objective: 02-04 Understand cost classifications used to predict cost behavior: variable costs; fixed costs; and mixed costs.

C

44. Within the relevant range:

A. variable cost per unit decreases as production decreases.B. fixed cost per unit increases as production decreases.C. fixed cost per unit decreases as production decreases.D. variable cost per unit increases as production decreases.


B

45. Discretionary fixed costs:

A. have a planning horizon that covers many years.B. may be reduced for short periods of time with minimal damage to the long-run goals of the organization.C. cannot be reduced for even short periods of time without making fundamental changes.D. are most effectively controlled through the effective utilization of facilities and organization.

Difficulty: 1 EasyTextBook - Chapter 02 #51Learning Objective: 02-04 Understand cost classifications used to predict cost behavior: variable costs; fixed costs; and mixed costs.

B

46. Stott Company requires one full-time dock hand for every 500 packages loaded daily. The wages for these dock hands would be:

A. variable.B. mixed.C. step-variable.D. curvilinear.

Difficulty: 2 MediumTextBook - Chapter 02 #53Learning Objective: 02-04 Understand cost classifications used to predict cost behavior: variable costs; fixed costs; and mixed costs.C

47. When the level of activity decreases, variable costs will:

A. increase per unit.B. increase in total.C. decrease in total.D. decrease per unit.

Difficulty: 1 EasyTextBook - Chapter 02 #54Learning Objective: 02-04 Understand cost classifications used to predict cost behavior: variable costs; fixed costs; and mixed costs.C

48. An example of a discretionary fixed cost would be:

A. taxes on the factory.B. depreciation on manufacturing equipment.C. insurance.D. research and development.

Difficulty: 1 EasyTextBook - Chapter 02 #57Learning Objective: 02-04 Understand cost classifications used to predict cost behavior: variable costs; fixed costs; and mixed costs.D

49. For planning, control, and decision-making purposes:

A. fixed costs should be converted to a per unit basis.B. discretionary fixed costs should be eliminated.C. variable costs should be ignored.D. mixed costs should be separated into their variable and fixed components.


D

BACKTESTING 2.550. Which of the following costs, if expressed on a per unit basis, would be expected to decrease as the level of production and sales increases?

A. Sales commissions.B. Fixed manufacturing overhead.C. Variable manufacturing overhead.D. Direct materials.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyTextBook - Chapter 02 #59Learning Objective: 02-04 Understand cost classifications used to predict cost behavior: variable costs; fixed costs; and mixed costs.

B

51. In describing the cost equation, Y = a + bX, "a" is:

A. the dependent variable cost.B. the independent variable the level of activity.C. the total fixed cost.D. the variable cost per unit of activity.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #60

Learning Objective: 02-04 Understand cost classifications used to predict cost behavior: variable costs; fixed costs; and mixed costs.C

52. Which of the following is an example of a cost that is variable with respect to the number of units produced?

A. Rent on the administrative office building.B. Rent on the factory building.C. Direct labor cost, where the direct labor workforce is adjusted to the actual production of the period.D. Salaries of top marketing executives.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: AnalyzeDifficulty: 1 EasyTextBook - Chapter 02 #61Learning Objective: 02-04 Understand cost classifications used to predict cost behavior: variable costs; fixed costs; and mixed costs.C

53. Contribution margin means:

A. what remains from total sales after deducting fixed expenses.B. what remains from total sales after deducting cost of goods sold.C. the sum of cost of goods sold and variable expenses.D. what remains from total sales after deducting all variable expenses.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #62Learning Objective: 02-06 Prepare income statements for a merchandising company using the traditional and contribution formats.D

54. The ________________________ is the amount remaining from sales revenue after all variable expenses have been deducted.

A. cost structureB. gross marginC. contribution marginD. committed fixed cost

AACSB: Reflective ThinkingAICPA BB: Critical Thinking

AICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #63Learning Objective: 02-06 Prepare income statements for a merchandising company using the traditional and contribution formats.C

55. A sunk cost is:

A. a cost which may be saved by not adopting an alternative.B. a cost which may be shifted to the future with little or no effect on current operations.C. a cost which cannot be avoided because it has already been incurred.D. a cost which does not entail any dollar outlay but which is relevant to the decision-making process.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: Decision MakingBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 02 #64Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.C

56. The cost of factory machinery purchased last year is:

A. an opportunity cost.B. a differential cost.C. a direct materials cost.D. a sunk cost.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 1 EasyTextBook - Chapter 02 #65Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.D

BACKTESTING 3.01. When the predetermined overhead rate is based on the level of activity at capacity, underapplied manufacturing overhead may be called the Cost of Unused Capacity and treated as a period expense.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook- Appendix 03B... #1Learning Objective: 03B-09 Understand the implications of basing the predetermined overhead rate on activity at capacity rather than on estimated activity for the period.

2. If predetermined overhead rates are based on budgeted activity and overhead includes significant fixed costs, then the unit product costs will be stable regardless of the budgeted level of activity for the period.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: Measurement

Blooms: UnderstandDifficulty: 1 EasyTextBook- Appendix 03B... #2Learning Objective: 03B-09 Understand the implications of basing the predetermined overhead rate on activity at capacity rather than on estimated activity for the period.

3. If the predetermined overhead rate on is based on the level of activity at capacity, then products will be charged only for the capacity that they use and will not be charged for the capacity they don't use.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook- Appendix 03B... #3Learning Objective: 03B-09 Understand the implications of basing the predetermined overhead rate on activity at capacity rather than on estimated activity for the period.

Qz3.0 ================================================================ End

cptr3atst Key

1. TRUE

2. FALSE

3. TRUE

BACKTESTING 3.111. Indirect materials are charged to specific jobs. True False

FALSE AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 03 #12Learning Objective: 03-05 Use T-accounts to show the flow of costs in a

job-order costing system. 12. When a job is completed, the goods are transferred from the

production department to the finished goods warehouse and the journal

entry would include a debit to Work in Process. True False

FALSE AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 03 #13Learning Objective: 03-04 Understand the flow of costs in a job-order

costing system and prepare appropriate journal entries to record costs. 13. Manufacturing overhead is overapplied if actual manufacturing

overhead costs for a period are greater than the amount of manufacturing

overhead cost that was charged to Work in Process. True False

FALSE AACSB: Reflective ThinkingAICPA BB: Critical Thinking

AICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 03 #14Learning Objective: 03-07 Compute underapplied or overapplied overhead

cost and prepare the journal entry to close the balance in Manufacturing

Overhead to the appropriate accounts. 14. If the actual manufacturing overhead cost for a period exceeds the

manufacturing overhead cost applied, then manufacturing overhead would be

considered to be underapplied. True False

TRUE AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 03 #15Learning Objective: 03-07 Compute underapplied or overapplied overhead

cost and prepare the journal entry to close the balance in Manufacturing

Overhead to the appropriate accounts. 15. Emco Company uses direct labor cost as a basis for computing its

predetermined overhead rate. In computing the predetermined overhead rate

for last year, the company misclassified a portion of direct labor cost as

indirect labor. The effect of this misclassification will be to: A. understate the predetermined overhead rate.B. overstate the predetermined overhead rate.C. have no effect on the predetermined overhead rate.D. cannot be determined from the information given.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: AnalyzeDifficulty: 3 HardTextBook - Chapter 03 #16Learning Objective: 03-01 Compute a predetermined overhead rate.b

16. Departmental overhead rates are generally preferred to plant-wide

overhead rates when: A. the activities of the various departments in the plant are not

homogeneous.B. the activities of the various departments in the plant are

homogeneous.C. most of the overhead costs are fixed.D. all departments in the plant are heavily automated.

Difficulty: 2 MediumTextBook - Chapter 03 #17Learning Objective: 03-01 Compute a predetermined overhead rate.Source: CMA, adapted a

17. In computing its predetermined overhead rate, Brady Company

included its factory insurance cost twice. This error will result in: A. the ending balance of Finished Goods to be understated.B. the credits to the Manufacturing Overhead account to be

understated.C. the Cost of Goods Manufactured to be overstated.D. the Net Operating Income to be overstated.

Difficulty: 3 HardTextBook - Chapter 03 #18Learning Objective: 03-01 Compute a predetermined overhead rate.Learning Objective: 03-05 Use T-accounts to show the flow of costs in a

job-order costing system. c

18. In a job-order costing system, the use of indirect materials that

have been previously purchased is recorded as a credit to: A. Work in Process inventory.B. Manufacturing Overhead.C. Raw Materials inventory.D. Finished Goods inventory.

Difficulty: 1 EasyTextBook - Chapter 03 #24Learning Objective: 03-05 Use T-accounts to show the flow of costs in a

job-order costing system. c

19. On the Schedule of Cost of Goods Manufactured, the final Cost of

Goods Manufactured figure represents: A. the amount of cost charged to Work in Process during the period.B. the amount of cost transferred from Finished Goods to Cost of

Goods Sold during the period.C. the amount of cost placed into production during the period.D. the amount of cost of goods completed during the current year

whether they were started before or during the current year.

TextBook - Chapter 03 #25Learning Objective: 03-06 Prepare schedules of cost of goods manufactured

and cost of goods sold and an income statement. d

BACKTESTING 3.220. There are two acceptable methods for closing out any balance of underapplied or overapplied manufacturing overhead. One method involves allocation of the balance among several accounts, whereas the other closes any balance directly to: A. Finished Goods inventory.B. Cost of Goods Sold.

C. Cost of Goods Manufactured.D. Work in Process inventory.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 03 #26Learning Objective: 03-07 Compute underapplied or overapplied overhead cost and prepare the journal entry to close the balance in Manufacturing Overhead to the appropriate accounts. b

21. Overapplied manufacturing overhead means that: A. the applied manufacturing overhead cost was less than the actual manufacturing overhead cost.B. the applied manufacturing overhead cost was greater than the actual manufacturing overhead cost.C. the estimated manufacturing overhead cost was less than the actual manufacturing overhead cost.D. the estimated manufacturing overhead cost was less than the applied manufacturing overhead cost.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 03 #27Learning Objective: 03-07 Compute underapplied or overapplied overhead cost and prepare the journal entry to close the balance in Manufacturing Overhead to the appropriate accounts. b

BACKTESTING 4.01. When materials are purchased in a process costing system, a materials account is debited with the cost of the materials. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 04 #1Learning Objective: 04-01 Record the flow of materials; labor; and overhead through a process costing system.

2. Costs are accumulated by department in a process costing system. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 04 #2Learning Objective: 04-01 Record the flow of materials; labor; and overhead through a process costing system.

3. The units in beginning work in process inventory plus the units in ending work in process inventory must equal the units transferred out of the department plus the units started into production. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 04 #4

Learning Objective: 04-01 Record the flow of materials; labor; and overhead through a process costing system.

4. In order to equitably allocate costs in a process costing system, dissimilar products are restated in terms of equivalent units by weighting the number of units produced by their market values. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 04 #5Learning Objective: 04-02 Compute the equivalent units of production using the weighted-average method.

5. Under the weighted-average method, the equivalent units used to compute the unit costs of ending inventories relate only to work done during the current period. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 04 #6Learning Objective: 04-02 Compute the equivalent units of production using the weighted-average method.

6. In calculating cost per equivalent unit under the weighted-average method, prior period costs are not combined with current period costs. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: Remember

Difficulty: 2 MediumTextBook - Chapter 04 #7Learning Objective: 04-03 Compute the cost per equivalent unit using the weighted-average method.

7. Under the weighted-average method of process costing, costs from the prior period are averaged with those of the current period in computing unit costs. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 04 #8Learning Objective: 04-03 Compute the cost per equivalent unit using the weighted-average method.

8. Using process costing, it is necessary to consider the stage of completion of the units when assigning conversion cost to partially completed units in the ending work in process inventory. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 04 #9Learning Objective: 04-04 Assign costs to units using the weighted-average method.

9. The "costs accounted for" portion of the cost reconciliation report includes the cost of beginning work in process inventory and the cost of units transferred out. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: Understand

Difficulty: 2 MediumTextBook - Chapter 04 #10Learning Objective: 04-05 Prepare a cost reconciliation report.

10. The "costs to be accounted for" portion of the cost reconciliation report includes the cost of ending work in process inventory and the costs added during the period. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 04 #11Learning Objective: 04-05 Prepare a cost reconciliation report.

BACTESTING 4.1BackTesting4.1================================= BackTesting4.0 End

11. The "costs accounted for" portion of the cost reconciliation report includes the cost of beginning work in

process inventory and the costs added to production during the period. True False

FALSE


12. The "costs to be accounted for" portion of the cost reconciliation report includes the cost of beginning work in

process inventory and the costs added during the period. True False

TRUE


13. Process costing is used in those situations where many different products or services are produced each period to

customer specifications. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: IndustryAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 04 #14Learning Objective: Other topics

14. A job-order cost system would be used to account for the cost of building an oil tanker. True False

TRUE

TextBook - Chapter 04 #15Learning Objective: Other topics

15. Operation costing is a hybrid system that employs certain aspects of both job-order and process costing. True False

TRUE


16. Both job-order and process costing systems use averaging to compute unit product costs. True False

TRUE


17. Pulo Corporation uses a weighted-average process costing system. The company has two processing departments.

Production starts in the Assembly Department and is completed in the Finishing Department. The units completed and

transferred out of the Assembly department during April will become the:

A. units in April's ending work in process in Finishing.B. units in May's beginning work in process in Finishing.C. units started in production in Finishing for April.D. units started in production in Finishing for May.

TextBook - Chapter 04 #18Learning Objective: 04-01 Record the flow of materials; labor; and overhead through a process costing system.c

18. Which of the following statements about a process costing system is incorrect? A. In a process costing system, each processing department has a work in process account.B. In a process costing system, equivalent units are separately computed for materials and for conversion costs.C. In a process costing system, overhead can be underapplied or overapplied just as in job-order costing.D. In a process costing system, materials costs are traced to units of products.

TextBook - Chapter 04 #20Learning Objective: 04-01 Record the flow of materials; labor; and overhead through a process costing system.Learning Objective: 04-02 Compute the equivalent units of production using the weighted-average method.d

19. Barraza Corporation uses a weighted-average process costing system. Barraza has two direct materials. One of

these materials is added at the beginning of the production process. The other material is added when processing is

50% complete. When will the equivalent units of production for these two materials be equal? A. when processing on beginning work in process is less than 50% complete at the start of the period.B. when processing on beginning work in process is more than 50% complete at the start of the period.C. when processing on ending work in process is over 50% complete.D. when processing on ending work in process is less than 50% complete.

TextBook - Chapter 04 #21Learning Objective: 04-02 Compute the equivalent units of production using the weighted-average method.c

20. When the weighted-average method of process costing is used, a department's equivalent units are computed by: A. subtracting the equivalent units in beginning inventory from the equivalent units in ending inventory.B. subtracting the equivalent units in beginning inventory from the equivalent units for work performed during the

period.C. adding the units transferred out to the equivalent units in ending inventory.D. subtracting the equivalent units in beginning inventory from the sum of the units transferred out and the

equivalent units in ending inventory.

TextBook - Chapter 04 #22Learning Objective: 04-02 Compute the equivalent units of production using the weighted-average method.c

BACKTESTING 4.2BackTesting4.2================================= BackTesting4.1 End

21. For which situation(s) below would an organization be more likely to use a process costing system of rather than

a job-order costing system? A. a paper mill that processes wood pulp into large rolls of paperB. a shop that restores old cars to "showroom" qualityC. a framing shop that builds picture frames to order for individual customersD. a masonry company that builds brick walls, bulkheads, and walkways designed by architects

AACSB: Reflective ThinkingAICPA BB: IndustryAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 04 #24Learning Objective: Other topicsa

22. Costs in an operation costing system are accumulated by: A. department.B. by individual job.C. by both job and departments.D. by neither job nor department.


AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 04 #25Learning Objective: Other topicsc

23. Which of the following companies would be most likely to use a process costing system? A. a shipbuilderB. a furniture manufacturerC. a law firmD. a utility producing natural gas

AACSB: Reflective ThinkingAICPA BB: IndustryAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 04 #26Learning Objective: Other topicsd

24. Which of the following companies would be most likely to use a process costing system? A. Ship builder.B. Movie studio.C. Oil refinery.D. Hospital.

AACSB: Reflective ThinkingAICPA BB: IndustryAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 04 #27Learning Objective: Other topics c

BackTesting4.2 End================================= BackTesting4.1 End

BACTESTING 5.0Published on Sep 27, 2014MyVideo-140928-002020 Qz5.0 Backtesting5.0----------------------------Start1. Incremental analysis is generally the most complicated and least direct approach to decision making. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #1Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income. 2. One assumption in CVP analysis is that the number of units produced and sold does not change. True False

FALSE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #2Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income. 3. Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and the fixed expense per unit is $5 at the current level of sales. The company's net operating income will increase by $10 if one more unit is sold. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyTextBook - Chapter 05 #3Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income. 4. One way to compute the total contribution margin is to deduct total fixed expenses from net operating income.

True False

FALSE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #4Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income. 5. On a cost-volume-profit graph, the revenue line will be shown below the total expense line for any activity level above the break-even point. True False

FALSE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #5Learning Objective: 05-02 Prepare and interpret a cost-volume-profit (CVP) graph and a profit graph. 6. If sales volume decreases, and all other factors remain unchanged, the contribution margin ratio will decrease. True False

FALSE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #6Learning Objective: 05-03 Use the contribution margin ratio (CM ratio) to compute changes in contribution margin and net operating income resulting from changes in sales volume. 7. The impact on net operating income of a given dollar change in sales can be computed by

multiplying the contribution margin by the dollar change in sales. True False

FALSE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #7Learning Objective: 05-03 Use the contribution margin ratio (CM ratio) to compute changes in contribution margin and net operating income resulting from changes in sales volume. 8. In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be higher in the company with a higher proportion of fixed expenses in its cost structure. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #8Learning Objective: 05-03 Use the contribution margin ratio (CM ratio) to compute changes in contribution margin and net operating income resulting from changes in sales volume. 9. At the break-even point, the total contribution margin and fixed expenses are equal. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #9Learning Objective: 05-05 Determine the break-even point. 10. All other things the same, an increase in total fixed expenses will increase the break-even

point. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyTextBook - Chapter 05 #10Learning Objective: 05-05 Determine the break-even point.

Qz5.0 Backtesting5.0----------------------------End

BACKTESTING 5.1MyVideo-140927-234351 Qz5.1 Backtesting5.1----------------------------Start11. All other things the same, a reduction in the variable expense per unit will decrease the break-even point. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #11Learning Objective: 05-05 Determine the break-even point. 12. All other things the same, an increase in variable expense per unit will reduce the break-even point. True False

FALSE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #12Learning Objective: 05-05 Determine the break-even point. 13. For a capital intensive, automated company the break-even point will tend to be higher and the margin of safety will be lower than for a less capital intensive company with the same sales. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: AnalyzeDifficulty: 2 MediumTextBook - Chapter 05 #13Learning Objective: 05-05 Determine the break-even point.Learning Objective: 05-07 Compute the margin of safety and explain its significance. 14. The unit sales volume necessary to reach a target profit is determined by dividing the sum of the fixed expenses and the target profit by the contribution margin per unit. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 05 #14Learning Objective: 05-06 Determine the level of sales needed to achieve a desired target profit. 15. The margin of safety in dollars equals the excess of actual sales over budgeted sales. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 05 #15Learning Objective: 05-07 Compute the margin of safety and explain its significance. 16. All other things the same, if the fixed expenses increase in a company then one would expect the margin of safety to increase. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Measurement

Blooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #16Learning Objective: 05-07 Compute the margin of safety and explain its significance. 17. As total sales increase beyond the break-even point, the degree of operating leverage will decrease. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 05 #17Learning Objective: 05-08 Compute the degree of operating leverage at a particular level of sales and explain how it can be used to predict changes in net operating income. 18. If two companies produce the same product and have the same total sales and same total expenses, operating leverage will be higher in the company with a higher proportion of fixed expenses in its cost structure. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 05 #18Learning Objective: 05-08 Compute the degree of operating leverage at a particular level of sales and explain how it can be used to predict changes in net operating income. 19. The degree of operating leverage in a company is largest at the break-even point and decreases as sales rise. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #19Learning Objective: 05-08 Compute the degree of operating leverage at a particular level of sales and explain how it can be used to predict changes in net operating income.

20. All other things the same, in periods of increasing sales, net operating income will tend to increase more rapidly in a company with high fixed costs and low variable costs than in a company with high variable costs and low fixed costs. True False

TRUE

Difficulty: 2 MediumTextBook - Chapter 05 #20Learning Objective: 05-08 Compute the degree of operating leverage at a particular level of sales and explain how it can be used to predict changes in net operating income. Qz5.1 Backtesting5.1----------------------------End

BACKTESTING 5.2MyVideo-140928-002545 Qz5.2 Backtesting5.2----------------------------Start

21. The overall contribution margin ratio for a company producing three products may be obtained by adding the contribution margin ratios for the three products and dividing the total by three. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 05 #21Learning Objective: 05-09 Compute the break-even point for a multiproduct company and explain the effects of shifts in the sales mix on contribution margin and the break-even point. 22. Contribution margin is the amount remaining after: A. variable expenses have been deducted from sales revenue.B. fixed expenses have been deducted from sales revenue.C. fixed expenses have been deducted from variable expenses.D. cost of goods sold has been deducted from sales revenues.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 05 #22Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income.A

23. If a company decreases the variable expense per unit while increasing the total fixed expenses, the total expense line relative to its previous position will: A. shift downward and have a steeper slope.B. shift downward and have a flatter slope.C. shift upward and have a flatter slope.D. shift upward and have a steeper slope.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: AnalyzeDifficulty: 3 HardTextBook - Chapter 05 #23Learning Objective: 05-02 Prepare and interpret a cost-volume-profit (CVP) graph and a profit graph. C24. The contribution margin ratio is equal to: A. Total manufacturing expenses/Sales.B. (Sales - Variable expenses)/Sales.C. 1 - (Gross Margin/Sales).D. 1 - (Contribution Margin/Sales).

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #24Learning Objective: 05-03 Use the contribution margin ratio (CM ratio) to compute changes in contribution margin and net operating income resulting from changes in sales volume. B25. Assume a company sells a single product. If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in sales dollars is: A. F/(P-V).B. F/[Q(P-V)].C. F/[Q(P-V)/P].D. F/[(P-V)/P].

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 05 #26Learning Objective: 05-05 Determine the break-even point.D 26. The break-even in units sold will decrease if there is an increase in: A. unit sales volume.B. total fixed expenses.C. unit variable expenses.

D. selling price.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: AnalyzeDifficulty: 2 MediumTextBook - Chapter 05 #27Learning Objective: 05-05 Determine the break-even point. D27. Which of the following is NOT a correct definition of the break-even point? A. the point where total sales equals total expenses.B. the point where total profit equals total fixed expenses.C. the point where total contribution margin equals total fixed expenses.D. the point where total profit equals zero.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 05 #28Learning Objective: 05-05 Determine the break-even point.B 28. The margin of safety is: A. the excess of budgeted or actual sales over budgeted or actual variable expenses.B. the excess of budgeted or actual sales over budgeted or actual fixed expenses.C. the excess of budgeted or actual sales over the break-even volume of sales.D. the excess of budgeted net operating income over actual net operating income.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 05 #29Learning Objective: 05-07 Compute the margin of safety and explain its significance.C 29. If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the degree of operating leverage is equal to: A. Q/(P-V).B. F/(P-V).C. F/[(P-V)/P].D. [(P-V)Q]/[(P-V)Q-F].

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 Medium

TextBook - Chapter 05 #30Learning Objective: 05-08 Compute the degree of operating leverage at a particular level of sales and explain how it can be used to predict changes in net operating income. D

Qz5.2 Backtesting5.0----------------------------End

BACKTESTING 6.01. Under variable costing, product costs consist of direct materials, direct labor, and variable manufacturing overhead. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 06 #1Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method.

1. 2. Under absorption costing, fixed manufacturing overhead is treated as a product cost. True False

TRUE


1. 3. Under variable costing, variable production costs are not treated as product costs. True False

FALSE


4. Under variable costing, fixed manufacturing overhead cost is not treated as a product cost. True False

TRUE


5. The costs assigned to units in inventory are typically lower under variable costing than under absorption costing. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 06 #5Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method.

6. Direct materials is considered to be a product cost under variable costing but not absorption costing.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 06 #6Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method.

7. Under variable costing, product cost does not contain any fixed manufacturing overhead cost.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyTextBook - Chapter 06 #8Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method.

8. Under conventional absorption costing, the fixed costs associated with idle production capacity are not included as part of the product cost.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 06 #9Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method.

9. Under absorption costing, the profit for a period is affected by a change in the number of units of finished goods in inventory.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 06 #10Learning Objective: 06-02 Prepare income statements using both variable and absorption costing.

10. When variable costing is used, and if selling prices exceed variable expenses and if the unit contribution margins, the sales mix, and fixed costs remain the same, profits move in the same direction as sales.

True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: AnalyzeDifficulty: 2 MediumTextBook - Chapter 06 #11Learning Objective: 06-02 Prepare income statements using both variable and absorption costing.

Qz6.0 Backtesting6.0======================== End

BACKTESTING 6.1MyVideo-141001-223039 Qz6.0 Backtesting6.1======================== Start

11. Because absorption costing emphasizes costs by behavior, it works well with cost-volume-profit analysis.

True False

FALSE


12. Net operating income is affected by the number of units produced when absorption costing is used.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 06 #13Learning Objective: 06-02 Prepare income statements using both variable and absorption

costing.

13. Under absorption costing, it is possible to defer a portion of the fixed manufacturing overhead costs of the current period to future periods through the inventory account.

True False

TRUE


14. When the number of units in work in process and finished goods inventories decrease, absorption costing net operating income will typically be greater than variable costing net operating income.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 06 #15Learning Objective: 06-02 Prepare income statements using both variable and absorption costing.Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ.

15. Assuming the LIFO inventory flow assumption, if production is less than sales for the period, absorption costing net operating income will generally be greater than variable costing net operating income.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 Medium

TextBook - Chapter 06 #16Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ.

16. Assuming the LIFO inventory flow assumption, if production equals sales for the period, absorption costing and variable costing will produce the same net operating income.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 06 #17Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ.

17. When viewed over the long term, cumulative net operating income will be the same for variable and absorption costing if ending inventories exceed beginning inventories.

True False

FALSE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: AnalyzeDifficulty: 3 HardTextBook - Chapter 06 #18Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ.

18. A common fixed cost is a fixed cost that supports more than one business segment and is traceable in whole or in part to at least one of the business segments.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 06 #19Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable

fixed costs from common fixed costs and use it to make decisions.

19. Common fixed costs should not be charged to the individual segments when preparing a segmented income statement.

True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 06 #20Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions.

20. If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost should not be considered a common cost.

True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 06 #21Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions.


BACKTESTING 6.226. If a company operates at the break even point for each of its segments, it will lose money overall if common fixed expenses exist.

True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: Understand

Difficulty: 2 MediumTextBook - Chapter 06 #27Learning Objective: 06-05 Compute companywide and segment break-even points for a company with traceable fixed costs.

27. The principal difference between variable costing and absorption costing centers on: A. whether variable manufacturing costs should be included in product costs.B. whether fixed manufacturing costs should be included in product costs.C. whether fixed manufacturing costs and fixed selling and administrative costs should be included in product costs.D. whether selling and administrative costs should be included in product costs.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 06 #31Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method.B

28. Under absorption costing, fixed manufacturing overhead costs: A. are deferred in inventory when production exceeds sales.B. are always treated as period costs.C. are released from inventory when production exceeds sales.D. are ignored.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 06 #32Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method.Learning Objective: 06-02 Prepare income statements using both variable and absorption costing.A

29. The term gross margin is used in reports prepared using: A. both absorption costing and variable costing.B. absorption costing but not variable costing.C. variable costing but not absorption costing.D. neither variable costing nor absorption costing.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 06 #35

Learning Objective: 06-02 Prepare income statements using both variable and absorption costing.B

30. When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will: A. tend to fluctuate in the same direction as fluctuations in the number of units produced.B. tend to remain constant.C. tend to fluctuate in the opposite direction as fluctuations in the number of units produced.D. fluctuate without any relation to the number of units produced.


A


BACKTESTING 6.331. George Corporation has no beginning inventory and manufactures a single product. If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will: A. be equal to the net operating income under variable costing.B. be greater than the net operating income under variable costing.C. be equal to the net operating income under variable costing plus total fixed manufacturing costs.D. be equal to the net operating income under variable costing less total fixed manufacturing costs.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 06 #37Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ.B

32. When production exceeds sales and the company uses the LIFO inventory flow assumption, the net operating income reported under absorption costing generally will be: A. less than net operating income reported under variable costing.B. greater than net operating income reported under variable costing.C. equal to net operating income reported under variable costing.D. higher or lower because no generalization can be made.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 06 #38Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ.B 33. Managers will often allocate common fixed expenses to business segments because: A. this is required by law.B. not allocating these costs will lead to bad decisions.C. they believe this practice will ensure that the company's common fixed expenses are covered.D. they do not want the sum of the business segment margins to equal the net operating income for the company.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 06 #42Learning Objective: 06-05 Compute companywide and segment break-even points for a company with traceable fixed costs.C

34. When using data from a segmented income statement, the dollar sales for a segment to break even is equal to: A. Common fixed expenses Unit CMB. Common fixed expenses Segment CM ratioC. Traceable fixed expenses Unit CMD. Traceable fixed expenses Segment CM ratio

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 06 #43Learning Objective: 06-05 Compute companywide and segment break-even points for a company with traceable fixed costs.D

35. When using data from a segmented income statement, the dollar sales for the company to break even overall is equal to: A. (Allocated fixed expenses + Traceable fixed expenses) Overall CM ratioB. (Traceable fixed expenses + Common fixed expenses) Overall CM ratioC. (Non-traceable fixed expenses + Common fixed expenses) Overall CM ratioD. (Traceable fixed expenses) Overall CM ratio


Blooms: RememberDifficulty: 1 EasyTextBook - Chapter 06 #44Learning Objective: 06-05 Compute companywide and segment break-even points for a company with traceable fixed costs.

B

Qz6.3 Backtesting6.3======================== EndCPTR6.0-6.3_Key_Q&A+AnswersOnly======================== End

BACKTESTING 7.01. The cash budget is developed from the budgeted income statement. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: KnowledgeTextBook - Chapter 07 #1Learning Objective: 1Learning Objective: 8Learning Objective: 9Level: Easy

2. The usual starting point in budgeting is to make a forecast of cash receipts and cash disbursements. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ComprehensionTextBook - Chapter 07 #2Learning Objective: 1Level: Medium

3. Budgets are used for planning rather than for control of operations. True False

FALSE


Blooms: ComprehensionTextBook - Chapter 07 #3Learning Objective: 1Level: Medium

4. Self-imposed budgets are those that are prepared by top management and then assigned to other managers within the organization. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: KnowledgeTextBook - Chapter 07 #4Learning Objective: 1Level: Easy

5. One of the distinct advantages of a budget is that it can help to uncover potential bottlenecks before they occur. True False

TRUE


6. A self-imposed budget can be a very effective control device in an organization. True False

TRUE


7. A production budget is to a manufacturing firm as a merchandise purchases budget is to a merchandising firm. True False

TRUE


8. In the merchandise purchases budget, the required purchases (in units) for a period can be determined by subtracting the beginning merchandise inventory (in units) from the budgeted sales (in units). True False

FALSE


9. When preparing a materials purchase budget, desired ending inventory is deducted from total needs of the period to arrive at materials to be purchased. True False

FALSE


10. In companies that have "no lay-off" policies, the total direct labor cost for a budget period is computed by multiplying the total direct labor hours needed to make the budgeted output of completed units by the direct labor wage rate. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ComprehensionTextBook - Chapter 07 #10Learning Objective: 5Level: HardQz7.0 BackTesting7.0__________End

BACKTESTING 7.111. If the expected level of activity is appreciably above or below the company's present capacity, it may be desirable to adjust fixed costs in the budget. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ComprehensionTextBook - Chapter 07 #11Learning Objective: 6Learning Objective: 7Level: Medium

12. In the manufacturing overhead budget, the non-cash charges (such as depreciation) are added to the total budgeted manufacturing overhead to determine the expected cash disbursements for manufacturing overhead. True False

FALSE


13. In the selling and administrative budget, the non-cash charges (such as depreciation) are deducted from the total budgeted selling and administrative expenses to determine the expected cash disbursements for selling and administrative expenses. True False

TRUE


14. The beginning cash balance is not included on the cash budget because the cash budget deals exclusively with cash flows rather than with balance sheet amounts. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ComprehensionTextBook - Chapter 07 #14Learning Objective: 8Level: Hard

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

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: KnowledgeTextBook - Chapter 07 #15Learning Objective: 1Learning Objective: 4Level: Easyb16. The budget or schedule that provides necessary input data for the direct labor budget is the: A. raw materials purchases budget.B. production budget.C. schedule of cash collections.D. cash budget.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: KnowledgeTextBook - Chapter 07 #16

Learning Objective: 1Learning Objective: 5Level: EasySource: CMA, adaptedb 17. The master budget process usually begins with the: A. production budget.B. operating budget.C. sales budget.D. cash budget.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: KnowledgeTextBook - Chapter 07 #18Learning Objective: 1Level: EasySource: CMA, adaptedc18. The cash budget must be prepared before you can complete the: A. production budget.B. budgeted balance sheet.C. raw materials purchases budget.D. schedule of cash disbursements.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: KnowledgeTextBook - Chapter 07 #19Learning Objective: 1Level: EasySource: CMA, adaptedB 19. Which of the following is not a benefit of budgeting? A. It uncovers potential bottlenecks before they occur.B. It coordinates the activities of the entire organization by integrating the plans and objectives of the various parts.C. It ensures that accounting records comply with generally accepted accounting principles.D. It provides benchmarks for evaluating subsequent performance.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: KnowledgeTextBook - Chapter 07 #20Learning Objective: 1Level: EasyC20. The concept of responsibility accounting means that: A. Budgetary data should be reviewed and approved by the budget committee.B. Budgetary data should be reviewed and approved by all levels of management.

C. An employee's performance should be evaluated only on those items under his or her control.D. An employee's performance should be evaluated only by his or her immediate supervisor.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ComprehensionTextBook - Chapter 07 #21Learning Objective: 1Level: MediumC Qz7.1 BackTesting7.1__________End

BACKTESTING 7.221. 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: A. responsibility accounting.B. contribution accounting.C. absorption accounting.D. operational budgeting.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: KnowledgeTextBook - Chapter 07 #22Learning Objective: 1Level: EasySource: CMA, adaptedA 22. A self-imposed budget or ________________ budget is a budget that is prepared with the full cooperation of managers at all levels. A. perpetualB. masterC. participativeD. responsibility

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: KnowledgeTextBook - Chapter 07 #23Learning Objective: 1Level: EasyC23. There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget? A. It details the required direct labor hours.B. It details the required raw materials purchases.C. It is calculated based on the sales budget and the desired ending inventory.

D. It summarizes the costs of producing units for the budget period.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: KnowledgeTextBook - Chapter 07 #24Learning Objective: 3Level: EasySource: CMA, adaptedC 24. The excess or deficiency of cash available over disbursements on the cash budget is calculated as follows: A. The beginning balance less the expected cash receipts less the expected cash disbursements.B. The cash available less the expected cash receipts plus the expected cash disbursements.C. The beginning balance plus the expected cash receipts less the expected cash disbursements.D. None of the above.


C Qz7.2 BackTesting7.2__________End

BACKTESTING 8.0MyVideo-141009-194407 Qz8.0 BackTesting8.0__________Start 1. The basic idea underlying responsibility accounting is that each manager should be held responsible for the overall profit of the company to ensure that all managers are acting together. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 08 #4Learning Objective: 08-01 Understand why organizations budget and the processes they use to create budgets.

2. Budgets are used to plan and to control operations. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyTextBook - Chapter 08 #5Learning Objective: 08-01 Understand why organizations budget and the processes they use to create budgets.

3. The sales budget is usually prepared before the production budget. True False

TRUE


4. The cash budget is typically prepared before the direct materials budget. True False

FALSE


5. In business, a budget is a method for putting a limit on spending. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 Easy

TextBook - Chapter 08 #9Learning Objective: 08-01 Understand why organizations budget and the processes they use to create budgets.

6. Planning involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change. True False

FALSE


7. The first budget a company prepares in a master budget is the production budget. True False

FALSE


8. A benefit of self-imposed budgeting is that it may allow lower-level managers to create budgetary slack.True False

FALSE


9. The direct materials budget is typically prepared before the production budget. True False

FALSE


10. A self-imposed budget is a budget that is prepared with the full cooperation and participation of managers at all levels. True False

TRUE


Qz8.0 BackTesting8.0_________End

BACKTESTING 8.111. The sales budget often includes a schedule of expected cash collections. TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 08 #16Learning Objective: 08-02 Prepare a sales budget; including a schedule of expected cash collections.

12. In a merchandising company, the required merchandise purchases for a period are determined by subtracting the desired ending inventory from the sum of the units to be sold during the period and the units in beginning inventory. FALSE


AICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 08 #18Learning Objective: 08-03 Prepare a production budget.

13. In companies that do not have "no lay-off" policies, the total direct labor cost for a budget period is computed by multiplying the total direct labor hours needed to make the budgeted output of completed units by the direct labor wage rate. TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 08 #20Learning Objective: 08-05 Prepare a direct labor budget.

14. The manufacturing overhead budget lists all costs of production other than selling and administrative expenses. FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 08 #22Learning Objective: 08-06 Prepare a manufacturing overhead budget.

15. Only variable manufacturing overhead costs are included in the manufacturing overhead budget. FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 08 #23Learning Objective: 08-06 Prepare a manufacturing overhead budget.

16. Both variable and fixed manufacturing overhead costs are included in the selling and administrative expense budget. FALSE


TextBook - Chapter 08 #25Learning Objective: 08-07 Prepare a selling and administrative expense budget.

17. The direct labor budget shows the direct labor-hours required to produce the desired ending inventory.FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 08 #21Learning Objective: 08-05 Prepare a direct labor budget.

18. On a cash budget, the total amount of budgeted cash payments for manufacturing overhead should not include any amounts for depreciation on factory equipment. TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 08 #26Learning Objective: 08-08 Prepare a cash budget.

19. Which of the following is NOT an objective of the budgeting process? A. To communicate management's plans throughout the entire organization.B. To provide a means of allocating resources to those parts of the organization where they can be used most effectively.C. To ensure that the company continues to grow.D. To uncover potential bottlenecks before they occur.


C

Qz8.1 BackTesting8.1__________End

BACKTESTING 8.2MyVideo-141009-190905 Qz8.2 BackTesting8.2__________Start

20. When preparing a production budget, the required production equals: A. budgeted sales + beginning inventory + desired ending inventory.B. budgeted sales - beginning inventory + desired ending inventory.C. budgeted sales - beginning inventory - desired ending inventory.D. budgeted sales + beginning inventory - desired ending inventory.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 08 #33Learning Objective: 08-03 Prepare a production budget.Source: CIMA, adapted

B

21. All the following are considered to be benefits of participative budgeting, except for: A. Individuals at all organizational levels are recognized as being part of a team; this results in greater support for the organization.B. The budget estimates are prepared by those in directly involved in activities.C. When managers set their own targets for the budget, top management need not be concerned with the overall profitability of operations.D. Managers are held responsible for reaching their goals and cannot easily shift responsibility by blaming unrealistic goals set by others.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 08 #32Learning Objective: 08-01 Understand why organizations budget and the processes they use to create budgets.Source: CMA, adaptedC

22. The budget method that maintains a constant twelve-month planning horizon by adding a new month on the end as the current month is completed is called: A. an operating budget.B. a capital budget.C. a continuous budget.D. a master budget.


Blooms: RememberDifficulty: 1 EasyTextBook - Chapter 08 #31Learning Objective: 08-01 Understand why organizations budget and the processes they use to create budgets.C

23. The direct labor budget is based on: A. the desired ending inventory of finished goods.B. the beginning inventory of finished goods.C. the required production for the period.D. the required materials purchases for the period.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 08 #34Learning Objective: 08-05 Prepare a direct labor budget.

C

Qz8.2 BackTesting8.2__________End

BACKTESTING 9.01. A planning budget is prepared before the period begins and is valid for whatever the actual level of activity turns out to be. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 09 #1Learning Objective: 09-01 Prepare a flexible budget.

2. Comparing a static planning budget to actual costs is a good way to assess whether variable costs are under control. True False

FALSE


AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 09 #2Learning Objective: 09-01 Prepare a flexible budget.

3. Directly comparing a static planning budget to actual costs helps to distinguish between differences in costs that are due to changes in activity and differences that are due to how well costs were controlled. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 09 #3Learning Objective: 09-01 Prepare a flexible budget.

4. Fixed costs should be ignored when evaluating how well a manager has controlled costs. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 09 #4Learning Objective: 09-01 Prepare a flexible budget.

5. Fixed costs should be included in a flexible budget even though they do not change when the level of activity changes. True False

TRUE


Blooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 09 #5Learning Objective: 09-01 Prepare a flexible budget.

6. When a flexible budget is used in performance evaluation, actual costs are compared to the static planning budget rather than to what the costs should have been for the actual level of activity during the period. True False

FALSE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 09 #6Learning Objective: 09-01 Prepare a flexible budget.

7. A flexible budget should not be used when making comparisons to actual results such as actual expenses. True False

FALSE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyTextBook - Chapter 09 #7Learning Objective: 09-01 Prepare a flexible budget.

8. A flexible budget cannot be used to estimate what costs should have been at a given level of activity. True False

FALSE


9. A flexible budget can be used to estimate what revenues and costs should have been, given the actual level of activity for the period. True False

TRUE


10. An activity variance is due to the difference between the level of activity used in the flexible budget and the actual level of activity. True False

FALSE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 09 #10Learning Objective: 09-02 Prepare a report showing activity variances.

BackTesting9.0_______________End

BACKTESTING 9.1BackTesting9.1_______________Start

11. An unfavorable activity variance indicates that activity was too high for the amount of sales. True False

FALSE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: Understand

Difficulty: 2 MediumTextBo0ok - Chapter 09 #11Learning Objective: 09-02 Prepare a report showing activity variances.

12. The activity variance for revenue is unfavorable if the actual level of activity for the period is less than the planned level of activity. True False

TRUE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBo0ok - Chapter 09 #12Learning Objective: 09-02 Prepare a report showing activity variances.

13. An unfavorable activity variance for a variable cost occurs because the actual level of activity is higher than expected when the static planning budget was prepared. True False

TRUE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBo0ok - Chapter 09 #13Learning Objective: 09-02 Prepare a report showing activity variances.

14. A spending variance is the difference between the cost in the static planning budget and the actual amount of the cost for the period. True False

FALSE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBo0ok - Chapter 09 #14Learning Objective: 09-03 Prepare a report showing revenue and spending variances.

15. A revenue variance is favorable if the actual revenue exceeds what the revenue should have

been for the actual level of activity of the period. True False

TRUE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBo0ok - Chapter 09 #15Learning Objective: 09-03 Prepare a report showing revenue and spending variances.

16. A revenue variance is unfavorable if the actual revenue is less than the revenue in the static planning budget. True False

FALSE


17. An unfavorable spending variance may reflect waste as well as paying too much for inputs. True False

TRUE


18. The revenue and spending variances are the differences between the flexible budget and the actual results for the period. True False

TRUE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBo0ok - Chapter 09 #18Learning Objective: 09-03 Prepare a report showing revenue and spending variances.

19. A favorable spending variance occurs when the actual cost exceeds the amount of the cost in the static planning budget. True False

FALSE


20. Controllability has little to do with whether a cost is fixed or variable. True False

TRUE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBo0ok - Chapter 09 #20Learning Objective: 09-04 Prepare a performance report that combines activity variances and revenue and spending variances.


BACKTESTING 9.2BackTesting9.2_______________Start

21. A flexible budget report should contain variable costs and mixed costs but not fixed costs. True False

FALSE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBo0ok - Chapter 09 #21Learning Objective: 09-04 Prepare a performance report that combines activity variances and revenue and spending variances.

22. In a flexible budget performance report, actual costs should be compared to the flexible budget at the original budgeted activity level. True False

FALSE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBo0ok - Chapter 09 #22Learning Objective: 09-04 Prepare a performance report that combines activity variances and revenue and spending variances.

23. If the actual level of activity is 4% less than planned, then the variable costs in the static budget should be decreased by 4% before comparing them to actual costs. True False

TRUE

AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBo0ok - Chapter 09 #24Learning Objective: 09-06 Understand common errors made in preparing performance reports

based on budgets and actual results.Learning Objective: 09-06 Understand common errors made in preparing performance reports based on budgets and actual results.

24. Directly comparing static budget costs to actual costs only makes sense if the costs are variable. True False

FALSE

25. Hoppy Corporation compares monthly operating results to a static budget prepared at the beginning of the month. When the actual level of activity is less than budgeted, which of the following would be true? A. Variable costs would show favorable variances.B. Variable costs would show unfavorable variances.C. Fixed costs would show favorable variances.D. Fixed costs would show unfavorable variances.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberBlooms: UnderstandDifficulty: 1 EasyDifficulty: 2 MediumTextBo0ok - Chapter 09 #30Learning Objective: 09-01 Prepare a flexible budget.Learning Objective: 09-06 Understand common errors made in preparing performance reports based on budgets and actual results.Source: CIMA, adapted

A


BACKTESTING 10.0BackTesting10.0_________________Start

1. A direct materials quantity standard generally includes an allowance for waste. True False

TRUE


AICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 10 #1Learning Objective: 10-01 Compute the direct materials price and quantity variances and explain their significance.

2. The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials purchased. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 10 #2Learning Objective: 10-01 Compute the direct materials price and quantity variances and explain their significance.

3. Waste on the production line will result in an unfavorable materials quantity variance. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyTextBook - Chapter 10 #3Learning Objective: 10-01 Compute the direct materials price and quantity variances and explain their significance.

4. A materials price variance is unfavorable if the actual price exceeds the standard price. True False

TRUE


5. A favorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period. True False

TRUE


6. The standard price per unit for direct materials should not include the cost of delivering the materials. True False

FALSE


7. Purchase of poor quality materials may cause a favorable materials price variance and an unfavorable labor efficiency variance. True False

TRUE

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 10 #7Learning Objective: 10-01 Compute the direct materials price and quantity variances and explain their significance.Learning Objective: 10-02 Compute the direct labor rate and efficiency variances and explain their significance.

8. An unfavorable labor rate variance can occur if workers with high hourly wage rates are assigned to work on products with standards that assume workers have low hourly wage rates. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 10 #8Learning Objective: 10-02 Compute the direct labor rate and efficiency variances and explain their significance.

9. The standard labor rate per hour defines the company's expected direct labor wage rate per hour, including employment taxes and fringe benefits. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 10 #9Learning Objective: 10-02 Compute the direct labor rate and efficiency variances and explain their significance.

10. The variable overhead efficiency variance measures how efficiently variable manufacturing overhead resources were used. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 10 #10Learning Objective: 10-03 Compute the variable manufacturing overhead rate and efficiency variances and explain their significance.

BackTesting10.0_________________End

BACKTESTING 10.111. A quantity standard indicates how much output should have been produced. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 10 #11Learning Objective: Other topics

12. The standard cost per unit is computed by dividing the standard quantity or hours by the standard price or rate. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 10 #12Learning Objective: Other topics

13. Which of the following would produce a materials price variance? A. An excess quantity of materials used.B. An excess number of direct labor-hours worked in completing a job.C. Shipping materials to the plant by air freight rather than by truck.D. Breakage of materials in production.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 10 #13Learning Objective: 10-01 Compute the direct materials price and quantity variances and explain their significance.c

14. The variance that is usually most useful in assessing the performance of the purchasing department manager is: A. the materials quantity variance.B. the materials price variance.

C. the labor rate variance.D. the labor efficiency variance.


B


BACKTESTING 10.21) The purpose of the budgeted cash flows statement is to: 1) _______A) explain what caused the actual change in cashB) explain what is expected to cause the estimated change in cashC) None of these answers is correct.D) estimate the sales revenue for the upcoming accounting period

2) The budget which is not closely related to any other budget is the: 2) _______A) All of the budgets are closely interrelated.B) cash budgetC) sales budgetD) selling and administrative expenses budget

3) A manager who would like information regarding all of the expected cash resources for the period should analyze the: 3) _______

A) budgeted income statement B) budgeted cash flow statementC) budgeted balance sheet D) cash sales budget

4) A change in any one of the budgets will probably: 4) _______A) None of these answers is correct.B) result in the actual realization of less revenue for the accounting periodC) have no material impact on the other budgets for the periodD) impact the other budgets by causing a ripple effect

5) If the sales budget is changed, then: 5) _______A) at the minimum, the purchases, cost of goods sold, and cash budgets will also changeB) none of the other budgets will changeC) only the cash budget will changeD) only the selling and administrative expenses budget will change

6) If the sales budget is changed, then: 6) _______A) only the budgeted statement of cash flows will changeB) the budgeted income statement and balance sheet will changeC) some of the budget schedules will change, but none of the budgeted financial statements will change

D) none of the other budgets or budget schedules will change

7) The budgeting approach where at any given point in time the budget projects for 12 months in the future is called a(n): 7) _______

A) zero-based budget B) imposed budgetC) incremental budget D) perpetual budget

8) The budgeting approach where the budget is continually being updated is known as: 8) _______A) continual budgeting B) a rolling budgetC) perpetual budgeting D) All of these answers are correct.

9) One advantage of perpetual budgeting is that: 9) _______A) it spreads the workload for budget preparation evenly over the yearB) it makes the budgeting process a routine matterC) it adds to an already heavy workload for many managersD) many managers will be satisfied with the status quo

10) One disadvantage of perpetual budgeting is that: 10) ______A) it spreads the workload for budget preparation evenly over the yearB) the budget always extends 12 months into the futureC) it makes the budgeting process a routine (just a few forms to fill out) matterD) There are no disadvantages to the perpetual budgeting technique.

11) Managers who are able to incorporate budget preparation into their routine work schedules are probably using the: 11) ______

A) incremental budgeting approach B) perpetual budgeting approachC) imposed budgeting approach D) zero-based budgeting approach

12) The budgeting approach that gets its name because the prior year's budgets are used to build the new operating budget is known as: 12) ______

A) incremental budgeting B) zero-based budgetingC) perpetual budgeting D) continuous budgeting

13) The budgeting approach which takes the firm's actual results to build the new budget is called: 13) ______A) zero-based budgeting B) perpetual budgetingC) incremental budgeting D) imposed budgeting

14) An advantage to using the incremental budgeting approach is that: 14) ______A) last year's unnecessary costs may be rolled into next year's budgetB) it is zero-basedC) it is simpleD) it is prepared on a perpetual basis

15) The budgeting approach where each item must be justified for its inclusion in the budget is the: 15) ______A) zero-based approach B) imposed approachC) incremental approach D) perpetual approach

16) An alternative to the incremental budgeting approach is the: 16) ______A) perpetual approach B) imposed approachC) zero-based approach D) continual approach

17) The budgeting approach where the budget is prepared without reference to past budgets or past actual results is known as: 17) ______

A) zero-based B) perpetual C) bottom-up D) top-down

18) The budget approach which is based on the assumption that upper management is most knowledgeable about the overall operations of the firm is known as: 18) ______

A) bottom-up B) zero-based C) incremental D) top-down

19) The budgeting approach where upper management prepares the budget and allows for little negotiation by the rest of the company is called: 19) ______

A) incremental B) imposed C) bottom-up D) zero-based

20) The budget approach where the initial budget is prepared by the lower-level managers and employees is the: 20) ______

A) top-down B) bottom-up C) incremental D) imposed

1) B2) A3) B4) D5) A6) B7) D8) D9) A10) C11) B12) A13) C14) C15) A16) C17) A18) D19) B20) B

BACKTESTING 11.0ABackTesting11.1a___Start�BackTesting11.0a___Start�1. A transfer price is the price charged when a company provides goods or services to an �outside company.�True False��

FALSE�


Blooms: RememberDifficulty: 1 EasyTextBook - Appendix 11A... #1Learning Objective: 11A-05 Determine the range; if any; within which a negotiated transfer price should fall.�2. Opportunity cost should be ignored in setting the transfer price.� �True False��

FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 11A... #2Learning Objective: 11A-05 Determine the range; if any; within which a negotiated transfer price should fall.�3. One disadvantage of using the actual cost of a product as the transfer price is that it does not� provide a strong incentive for the producing division to control its costs.�True False��

TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyTextBook - Appendix 11A... #3Learning Objective: 11A-05 Determine the range; if any; within which a negotiated transfer price should fall.�4. When a division is operating at full capacity, the transfer price to other divisions should not �include opportunity costs.�True False��

FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 11A... #4Learning Objective: 11A-05 Determine the range; if any; within which a negotiated transfer price should fall.�

5. The selling division in a transfer pricing situation should want the transfer price to cover at �least the variable cost per unit plus the lost contribution margin per unit on outside sales.�True False��

TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 11A... #5Learning Objective: 11A-05 Determine the range; if any; within which a negotiated transfer price should fall.�6. Setting transfer prices at full cost can lead to good decisions because, among other reasons, �full cost takes into account opportunity costs. True False��FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 11A... #6Learning Objective: 11A-05 Determine the range; if any; within which a negotiated transfer price should fall.�7. In setting a transfer price, which of the following should not be considered?� �A. Fixed production costs of the buying division.�B. Production capacity of the selling division.�C. Product demand from outside customers.�D. Costs eliminated by internal transfers.��

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 11A... #7Learning Objective: 11A-05 Determine the range; if any; within which a negotiated transfer price should fall.�A8. For performance evaluation purposes, the lump-sum amount of fixed service department �costs charged to an operating department should usually be based on either the operating department's peak-period or long-run average needs.�True False��

TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 11B... #1Learning Objective: 11B-06 Charge operating departments for services provided by service departments.�9. The fixed costs of service departments should be allocated to operating departments in �predetermined lump-sum amounts that are determined in advance.�True False��

TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 11B... #2Learning Objective: 11B-06 Charge operating departments for services provided by service departments.

BackTesting11.0a___End

BACKTESTING 11.1ABackTesting11.1a___Start��10. Service department costs should not be separated into fixed and variable costs when �charging operating departments for their services.�True False��

FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 11B... #3Learning Objective: 11B-06 Charge operating departments for services provided by service departments.�11. Ideally, the base selected for charging a service department's costs to operating �

departments should be whatever drives those costs.�True False��

TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 11B... #4Learning Objective: 11B-06 Charge operating departments for services provided by service departments.�12. Sales dollars is generally a poor base to use in allocating service department costs.� �True False��

TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 11B... #5Learning Objective: 11B-06 Charge operating departments for services provided by service departments.�13. Charges for service department costs to operating departments should be based on the �actual variable costs and the budgeted fixed costs of the service department. True False��FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 11B... #6Learning Objective: 11B-06 Charge operating departments for services provided by service departments.�14. For performance evaluation purposes, any variance over budgeted fixed costs in a service �department should be charged to the departments that use the service.�True False��

FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 11B... #7Learning Objective: 11B-06 Charge operating departments for services provided by service departments.�15. If a portion of the actual cost incurred by a service department is not charged to operating �departments, then at the end of the period, this uncharged cost should be:�A. allocated equally between the other departments.�B. allocated between the other departments in proportions to budgeted activity.�C. treated as a variance of the service department.�D. treated as a variance of the other departments.��

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 11B... #8Learning Objective: 11B-06 Charge operating departments for services provided by service departments.�C16. For performance evaluation purposes, any variance between budgeted fixed costs and �actual fixed costs in a service department:�A. should be allocated both to operating departments and to other service departments on the �basis of usage.B. should be allocated to operating departments only on the basis of usage.�C. should be allocated to other service departments only on the basis of usage.�D. should be retained in the service department itself.��

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 11B... #9Learning Objective: 11B-06 Charge operating departments for services provided by service departments.�D17. For performance evaluation purposes, the variable costs of a service department should be �charged to operating departments using:�A. the actual variable rate and the budgeted level of activity for the period.�B. the budgeted variable rate and the actual level of activity for the period.�C. the budgeted variable rate and the budgeted level of activity for the period.�D. the actual variable rate and the peak-period or long-run average servicing capacity.��


AICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 11B... #10Learning Objective: 11B-06 Charge operating departments for services provided by service departments.

B�

BackTesting11.1a___End��


10. Suppose a company evaluates divisional performance using both ROI and residual income. �The company's minimum required rate of return for the purposes of residual income calculations is 12%. If a division has a residual income of $6,000, then its ROI is greater than 12%.�True False��TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #10Learning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales; expenses; and assets affect ROI.Learning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.�11. Return on investment is superior to residual income as a means of measuring performance �because it encourages managers to make investment decisions that are more consistent with the interests of the company as a whole.�True False��FALSE�


TextBook- Chapter 11 #11Learning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales; expenses; and assets affect ROI.Learning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.�12. ROI and residual income are tools used to evaluate managerial performance in profit �centers.�True False��FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #12Learning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales; expenses; and assets affect ROI.Learning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.�13. Residual income is the net operating income that an investment center earns above the �minimum required return on the investment in fixed assets.�True False��FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #13Learning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.�14. Residual income should not be used to evaluate a profit center.� �True False��TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #14Learning Objective: 11-02 Compute residual income and understand its strengths and

weaknesses.�15. Process Time is the only non-value-added component of Throughput Time.� �True False��FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook- Chapter 11 #15Learning Objective: 11-03 Compute delivery cycle time; throughput time; and manufacturing cycle efficiency (MCE).�16. Move time is considered value-added time.� �True False��FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook- Chapter 11 #16Learning Objective: 11-03 Compute delivery cycle time; throughput time; and manufacturing cycle efficiency (MCE).�17. Queue time is considered value-added time.� �True False��FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook- Chapter 11 #17Learning Objective: 11-03 Compute delivery cycle time; throughput time; and manufacturing cycle efficiency (MCE).�18. Wait time is considered non-value-added time.� �True False��TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook- Chapter 11 #18Learning Objective: 11-03 Compute delivery cycle time; throughput time; and manufacturing cycle efficiency (MCE).�19. A manufacturing cycle efficiency (MCE) ratio close to 1.00 is desirable because this is the �ratio of value-added time to throughput time.�True False��TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #19Learning Objective: 11-03 Compute delivery cycle time; throughput time; and manufacturing cycle efficiency (MCE).



�20. Inspection Time is generally considered to be non-value-added time.� �True False��TRUE�


Difficulty: 1 EasyTextBook- Chapter 11 #20Learning Objective: 11-03 Compute delivery cycle time; throughput time; and manufacturing cycle efficiency (MCE).�21. Throughput time is the amount of time required to process raw materials into completed �products.�True False��TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook- Chapter 11 #21Learning Objective: 11-03 Compute delivery cycle time; throughput time; and manufacturing cycle efficiency (MCE).�22. Because continuous improvement is very difficult, the emphasis in the balanced scorecard �tends to be on meeting preset standards.�True False��FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #22Learning Objective: 11-04 Understand how to construct and use a balanced scorecard.�23. A balanced scorecard should not contain any performance measures concerning customer �satisfaction since the extent to which customers are satisfied is beyond the control of any manager in the company.�True False��FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #23Learning Objective: 11-04 Understand how to construct and use a balanced scorecard.�24. All profit centers are responsibility centers, but not all responsibility centers are profit �

centers.�True False��TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #24Learning Objective: Other topics�25. A profit center is responsible for generating revenue and for controlling costs.� �True False��TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook- Chapter 11 #25Learning Objective: Other topics�26. A cost center is not a responsibility center.� �True False��FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook- Chapter 11 #26Learning Objective: Other topics�27. A company that is seeking to increase ROI should attempt to decrease:� �A. sales.�B. turnover.�C. margin.�D. average operating assets.��

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: Analyze

Difficulty: 2 MediumTextBook- Chapter 11 #27Learning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales; expenses; and assets affect ROI.�D28. Consider the following three conditions:�

I. An increase in salesII. An increase in operating assetsIII. A reduction in expenses

Which of the above conditions provide a way in which a manager can improve return on investment?�A. Only I�B. Only I and II�C. Only I and III�D. Only II and III��

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: AnalyzeDifficulty: 2 MediumTextBook- Chapter 11 #28Learning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales; expenses; and assets affect ROI.�C29. Net operating income is defined as:� �A. net income plus interest and taxes.�B. sales minus variable expenses.�C. sales minus variable expenses and traceable fixed expenses.�D. contribution margin minus traceable and common fixed expenses.��

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #29Learning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales; expenses; and assets affect ROI.�

A


BACKTESTING 11.330. Which of the following would be an argument for the use of net book value in the �computation of operating assets in return on investment calculations?�A. It allows the manager to replace old, worn-out equipment with a minimum adverse impact on �ROI.B. It allows ROI to decrease over time as assets get older.�C. It is consistent with how plant and equipment items are reported on the balance sheet.�D. It eliminates both age of equipment and method of depreciation as factors in ROI �computations.�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #30Learning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales; expenses; and assets affect ROI.

C�31. Managerial performance can be measured in many different ways including return on �investment (ROI) and residual income. A good reason for using residual income instead of ROI is:�A. Residual income can be computed without having to measure operating assets.�B. Managers are more likely to accept projects that are beneficial to the company.�C. ROI does not take into account both turnover and margin.�D. A minimum rate of return does not have to be specified when the residual income approach �is used.�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #31Learning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales; expenses; and assets affect ROI.Learning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.Source: CMA, adapted�B32. Residual income:� �A. is the return on investment (ROI) percentage multiplied by average operating assets.�B. is the net operating income earned above a certain minimum required return on sales.�C. is the net operating income earned above a certain minimum required return on average �operating assets.D. will always be greater than zero.��

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #33Learning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.�C33. All other things being the same, which of the following would increase the residual income?��A. Decrease in average operating assets.�B. Decrease in sales.�C. Increase in minimum required return.�D. Decrease in net operating income.��

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: AnalyzeDifficulty: 2 MediumTextBook- Chapter 11 #34Learning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.�A34. Throughput Time consists of:� �A. Process Time.�B. Inspection Time and Move Time.�C. Process Time, Inspection Time, and Move Time.�D. Process Time, Inspection Time, Move Time, and Queue Time.��

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook- Chapter 11 #35Learning Objective: 11-03 Compute delivery cycle time; throughput time; and manufacturing cycle efficiency (MCE).�D35. Manufacturing Cycle Efficiency (MCE) is computed as:� �A. Throughput Time Delivery Cycle Time.� �B. Process Time Delivery Cycle Time.� �C. Value-Added Time Throughput Time.� �D. Value-Added Time Delivery-Cycle Time.� ��


Difficulty: 1 EasyTextBook- Chapter 11 #36Learning Objective: 11-03 Compute delivery cycle time; throughput time; and manufacturing cycle efficiency (MCE).�C36. Contribution income statements are used to measure the performance of:� �A. cost centers.�B. both cost centers and profit centers.�C. both cost centers and investment centers.�D. both profit centers and investment centers.��

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook- Chapter 11 #37Learning Objective: Other topics�

D


BACKTESTING 12.0BackTesting12.0___Start 1. A cost that is traceable to a segment through activity-based costing may or may not be an avoidable cost for decision making. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 12 #1Learning Objective: 12-01 Identify relevant and irrelevant costs and benefits in a decision.

2. Only future costs that differ between alternatives are relevant in decision making. TRUE True False

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 12 #2Learning Objective: 12-01 Identify relevant and irrelevant costs and benefits in a decision.

3. Future costs that do not differ between the alternatives in a decision are avoidable costs. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 12 #3Learning Objective: 12-01 Identify relevant and irrelevant costs and benefits in a decision.

4. The book value of a machine, as shown on the balance sheet, is not relevant in a decision concerning the replacement of that machine by another machine. (Ignore taxes.) True False

TRUE


5. A cost that is relevant in one decision may not be relevant in another decision. True False

TRUE


6. Opportunity costs are not usually recorded in the accounts of a business. True False

TRUE


7. A cost that can be avoided by choosing one alternative over another is not relevant for decision purposes. True False

FALSE


8. The book value of old equipment is a relevant cost in a decision to replace that equipment.

(Ignore taxes.) True False

FALSE


9. An avoidable cost is a cost that can be completely eliminated irrespective of whether one chooses one alternative or another in a decision. True False

FALSE


BackTesting12.0___End

BACKTESTING 12.1BackTesting12.1___Start

10. A fixed cost cannot be a differential cost. True False

FALSE


11. One of the advantages of allocating common fixed costs to a product is that such allocations more accurately reflect the product's true profitability. True False

FALSE


12. Fixed costs may or may not be sunk costs. True False

TRUE


13. A product whose revenues do not cover the sum of its variable costs, its traceable fixed costs, and its allocated share of general corporate administrative expenses should usually be dropped. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 12 #13Learning Objective: 12-02 Prepare an analysis showing whether a product line or other business segment should be added or dropped.

14. In a decision to drop a segment, the opportunity cost of the space occupied by the segment is the cost of renting or building similar space nearby. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 12 #14Learning Objective: 12-02 Prepare an analysis showing whether a product line or other business segment should be added or dropped.

15. Fixed costs may or may not be relevant in decisions about whether a product should be dropped. True False

TRUE


16. In a decision to drop a product, the product should not be charged for factory rent if the space in which the product is produced has no alternative use and the rental payment is unavoidable. True False

TRUE


17. When a company is involved in only one activity in the entire value chain, it is vertically integrated. True False

FALSE


AICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 12 #17Learning Objective: 12-03 Prepare a make or buy analysis.

18. A vertically integrated company is more dependent on its suppliers than a company that is not vertically integrated. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 12 #18Learning Objective: 12-03 Prepare a make or buy analysis.

19. A disadvantage of vertical integration is that by pooling demand for parts from a number of companies, a supplier will face diseconomies of scale that result in lower quality and higher cost than if every company makes its own parts. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 12 #19Learning Objective: 12-03 Prepare a make or buy analysis.



20. In a special order situation, any fixed cost that could be avoided if the special order were not accepted would be irrelevant. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 12 #20Learning Objective: 12-04 Prepare an analysis showing whether a special order should be accepted.

21. Depreciation expense on existing factory equipment is usually irrelevant in a decision of whether to accept or reject a special offer for a company's product. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 12 #21Learning Objective: 12-04 Prepare an analysis showing whether a special order should be accepted.

22. When a company has a production constraint, total contribution margin will be maximized by emphasizing the products with the lowest contribution margin per unit of the constrained resource. True False

FALSE


AICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 12 #22Learning Objective: 12-05 Determine the most profitable use of a constrained resource.

23. One way to increase the effective utilization of a bottleneck is to put less emphasis on preventing defects and simply discard defective units at final inspection before sending them to customers. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 12 #23Learning Objective: 12-06 Determine the value of obtaining more of the constrained resource.

24. Defective units should be detected and scrapped or reworked before the bottleneck operation rather than after it. True False

TRUE


25. In a factory operating at capacity, not every machine and person should be working at the maximum possible rate. True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 3 HardTextBook - Chapter 12 #25Learning Objective: 12-06 Determine the value of obtaining more of the constrained resource.

26. Eliminating nonproductive processing time is particularly important in work stations that do not

contain bottlenecks. True False

FALSE


27. The split-off point in a process that produces joint products is the point in the manufacturing process at which the joint products are sent to separate customers. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 12 #27Learning Objective: 12-07 Prepare an analysis showing whether joint products should be sold at the split-off point or processed further.

28. Joint costs are relevant in the decision to sell a product at the split-off point or to process the product further. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 12 #28Learning Objective: 12-07 Prepare an analysis showing whether joint products should be sold at the split-off point or processed further.

29. The term joint cost is used to describe the costs incurred after the split-off point in a process involving joint products. True False

FALSE




30. Joint products are products that are sold to customers as a set or as part of a group of products. True False

FALSE


31. Hal currently works as the fry guy at Burger Haven but is thinking of quitting his job to attend college full time next semester. Which of the following would be considered an opportunity cost of attending college? A. the cost of the textbooksB. the cost of the cola that Hal will consume during classC. Hal's lost wages at Burger HavenD. the cost of commuting to the Burger Haven job

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyTextBook - Chapter 12 #31Learning Objective: 12-01 Identify relevant and irrelevant costs and benefits in a decision.

C32. Opportunity costs are:

A. not used for decision making.B. the same as variable costs.C. the same as historical costs.D. relevant in decision making.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 12 #32Learning Objective: 12-01 Identify relevant and irrelevant costs and benefits in a decision.Source: CMA, adapted

D33. In a make-or-buy decision, relevant costs include: A. unavoidable fixed costsB. avoidable fixed costsC. fixed factory overhead costs applied to productsD. fixed selling and administrative expenses

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 12 #34Learning Objective: 12-03 Prepare a make or buy analysis.Source: CMA, adapted

B34. Management is considering a one-time-only special order. There is sufficient idle capacity to fill the order without affecting any normal sales. Which one of the following is NOT relevant in making the decision? A. absorption costing unit product costsB. variable costsC. incremental costsD. differential costs

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 12 #35Learning Objective: 12-04 Prepare an analysis showing whether a special order should be accepted.Source: CMA, adapted

A35. When a multi-product factory operates at full capacity, decisions must be made about which products to emphasize. In making such decisions, products should be ranked based on: A. selling price per unit

B. contribution margin per unitC. contribution margin per unit of the constraining resourceD. unit sales volume

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 12 #36Learning Objective: 12-05 Determine the most profitable use of a constrained resource.Source: CMA, adapted

C36. Which of the following is not an effective way of dealing with a production constraint (i.e., bottleneck)? A. Reduce the number of defective units produced at the bottleneck.B. Pay overtime to workers assigned to the bottleneck.C. Pay overtime to workers assigned to work stations located after the bottleneck in the production process.D. Subcontract work that would otherwise require use of the bottleneck.


C37. Two or more products produced from a common input are called: A. common costs.B. joint products.C. joint costs.D. sunk costs.


B


BACKTESTING 13.0ABacktesting13.0a___Start1. The present value of a given amount increases as the number of years over which it is to be discounted decreases. . True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 13A... #1Learning Objective: 13A-07 Understand present value concepts and the use of present value tables.

2. The higher the discount rate, the lower the present value of a given future cash flow. . True False

TRUE


3. The present value of a cash flow will never be less than the future dollar amount of the cash flow. . True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 13A... #3Learning Objective: 13A-07 Understand present value concepts and the use of present value tables.

4. The present value of an amount to be received in five years is greater than the present value of the same amount to be received in ten years. . True False

TRUE


5. Computing the present value of future dollars is known as: A. interpolating.B. compounding.C. annualizing.D. discounting.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 13A... #5Learning Objective: 13A-07 Understand present value concepts and the use of present value tables.d6. Unless the organization is tax-exempt, income taxes should be considered when using net present value analysis to make capital budgeting decisions. . True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 13C... #1Learning Objective: 13C-08 Include income taxes in a net present value analysis.

7. A capital budgeting project's incremental net income computation for purposes of determining incremental tax expense does not include immediate cash outflows for initial investments in equipment. . True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 13C... #2Learning Objective: 13C-08 Include income taxes in a net present value analysis.

8. The release of working capital at the end of an investment project is not a taxable cash inflow. . True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 13C... #3Learning Objective: 13C-08 Include income taxes in a net present value analysis.

9. The investment in working capital at the start of an investment project can not be deducted from revenues when computing taxable income. . True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 13C... #4Learning Objective: 13C-08 Include income taxes in a net present value analysis. Backtesting13.0a___End

BACKTESTING 13.1BackTesting13.1_____Start��10. The project profitability index is used to compare the net present values of two investments �that require different amounts of investment funds.True False��TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 13 #21Learning Objective: 13-05 Rank investment projects in order of preference.�11. When making preference decisions about competing investment proposals, the internal rate �of return is superior to the project profitability index.�True False��

FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 13 #24Learning Objective: 13-05 Rank investment projects in order of preference.�12. The simple rate of return method does not take into account the time value of money.� �True False��

TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 13 #26Learning Objective: 13-06 Compute the simple rate of return for an investment.�13. The net present value and internal rate of return methods of capital budgeting are superior �to the payback method because they:�A. are easier to implement.�B. consider the time value of money.�C. require less data.�

D. reflect the effects of depreciation and income taxes.��

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 13 #27Learning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.b�14. For capital budgeting decisions, the simple rate of return method is superior to the net �present value method.�True False��

FALSE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 13 #13Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.�15. The internal rate of return method assumes that the cash flows generated by the project are �immediately reinvested elsewhere at a rate of return that equals the internal rate of return.True False��TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 13 #14Learning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.�16. The salvage value of new equipment should be considered when using the internal rate of �return method to evaluate a project.�True False��

TRUE

�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 13 #16Learning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.�17. When using internal rate of return to evaluate investment projects, if the internal rate of �return is greater than the required rate of return, the project should be accepted.True False��TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 13 #17Learning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.�18. In preference decision situations, a project with a lower net present value may be preferable� to a project with a higher net present value.True False��TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 13 #19Learning Objective: 13-05 Rank investment projects in order of preference.�19. Preference decisions follow screening decisions and seek to rank investment proposals in �order of their desirability.�True False��

TRUE�


Difficulty: 1 EasyTextBook - Chapter 13 #20Learning Objective: 13-05 Rank investment projects in order of preference.

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�10. Under the simplifying assumptions made in the text, to calculate the amount of income tax expense �associated with an investment project, first calculate the incremental net income earned during each year of the project and then multiply each year's incremental net income by the tax rate. .��True False��

TRUE�

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Appendix 13C... #5Learning Objective: 13C-08 Include income taxes in a net present value analysis.�11. In capital budgeting computations, discounted cash flow methods:� �A. automatically provide for recovery of initial investment.�B. can't be used unless cash flows are uniform from year to year.�C. assume that all cash flows occur at the beginning of a period.�D. ignore all cash flows after the payback period.��

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Appendix 13C... #6Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.

A

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20. The project profitability index is computed by dividing the present value of the cash inflows of the project by present value of the cash outflows of the project.True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 13 #22Learning Objective: 13-05 Rank investment projects in order of preference.

21. An investment project with a project profitability index of less than one should ordinarily be rejected. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumTextBook - Chapter 13 #23Learning Objective: 13-05 Rank investment projects in order of preference.

22. If a project does not have constant incremental revenues and expenses over its useful life, the simple rate of return will fluctuate from year to year.True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 13 #25Learning Objective: 13-06 Compute the simple rate of return for an investment.

23. If the internal rate of return exceeds the required rate of return for a project, then the net present value of that project is negative.True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 13 #11Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

24. When cash flows are uneven and vary from year to year, the net present value method is easier to use than the internal rate of return method.True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 13 #10Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

25. Discounted cash flow techniques do not take into account recovery of initial investment. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 13 #8

Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.

26. When discounted cash flow methods of capital budgeting are used, the working capital required for a project is ordinarily counted as a cash inflow at the beginning of the project and as a cash outflow at the end of the project. True False

FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumTextBook - Chapter 13 #7Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.

27. The basic premise of the payback method is that the more quickly the cost of an investment is recovered the more desirable is the investment.True False

TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyTextBook - Chapter 13 #5Learning Objective: 13-01 Determine the payback period for an investment.

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