Accounting ACCT 2620 Study Guide - Quiz Guide: Cost Driver, Profit Center, Variable Cost

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21 Feb 2017

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Chapter 11: flexible budgeting and analysis of overhead costs. Static budgets and flexible budgets: static budget: budgeted output quantity * standard cots. Based on particular level of forecasted activity: flexible budget: actual output quantity *standard cost. Flexible budget is benchmark against which the firm compares actual. Overhead cost variances: analyzing differences between actual and standard overhead costs. Standard activity level- the amount of hours (cost driver) you expect to use to produce actual output (standard allowed activity level) Variable overhead variances- a closer look: spending variances. Reflects whether total variable oh is greater/lower than expected. Using more/less oh per unit of cost driver. Key for cost control: low correlation between cost driver and cost incurred, efficiency variance. Simply reflects adjustment in expectations: potential reasons for a spending variance. Fixed overhead: fixed overhead doe snot vary with activity. So no point to compute price and efficiency variances.

Related Questions

1. T or F: Standardsare set for units; budgets are expressed in total dollars.

2. T or F: The standard cost per unit iscomputed by multiplying the standard quantity or hours by the

standard price or rate.

3. T or F: When actual revenue is above budgetor actual cost is below budget, a favorable variance

occurs.

4. T or F: Anunfavorable cost variance occurs when actual cost is higher thanbudget cost.

5. T or F With a flexible budget a manager can determine whatcosts should have been attained at a

given level of activity.

6. T or F : In a standard costing system wherethe denominator activity for the predetermined

overhead rate is labor-hours, overhead costs are applied to work inprocess on the basis of

actual hours worked.

7. T or F: A volumevariance and an efficiency variance are computed for fixed overheadcosts.

8. T or F: The budgetvariance represents the difference between the actual fixedoverhead cost

incurred during a period and the budgeted fixedoverhead cost.

9. T or F: Under theabsorption costing method, a company can increase profits byincreasing

production rather than by increasing sales.

10. T or F: Profitsmove in the same direction as sales when variable costing is usedif selling prices,

thesales mix, and the cost structure remain the same.

11. T or F: Thesalary of the CEO of Wal-Mart is a traceable fixed cost of thevarious WM stores.

12. T or F: Indirectcost is not traced directly to specific cost objects (products,jobs, or customers).

13. T or F: A costthat has already been incurred and therefore cannot be changed byany alternatives

issunk cost.

14. T or F:Generally, a product line should be dropped when the fixed coststhat can be avoided by dropping the product line are less than thecontribution margin that will be lost.

15. When the amount assigned to aresponsibility center is significantly influenced by the actions ofsomeone within the responsibility center, the item of cost is a_____________________.

16. In a _____________ cost system,every unit of product moving along the production line bears thesame amount of overhead cost, regardless of how much time itactually takes to process a particular unit.

17. In _______________ costing, nofixed overhead costs are charged to individual units of product, sono overhead rate for the fixed component of overhead costs need beused in the cost accounting system.

18. A cost that is incurred to supporta number of costing objects but cannot be traced to themindividually is a ___________________.

19. _______________is often regardedas the best approach to the transfer pricing problem, particularlyif transfer price negotiations routinely become bogged down.

20. A _______________ is simply thedifference between a predetermined norm or standard and the____________ results. Management wants to know not only what theamounts of the differences were but also, and more important, whythese occurred to take corrective action.

21. A _______________ center is anybusiness segment whose manger has control over both cost andrevenue. However, it generally does not have control overinvestment funds.

* Words banks for theabove Q15 through Q21: Absorbed, Actual, Budgeted, Common cost,Controllable cost, Cost, Full, Market price, Negotiated transferprice, Profit, Standards, Transfer price, Variable, &Variance.

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A decentralized organization is one in which:

a. each stockholder is given decision-making authority.

b. only top-level management is given decision-makingauthority.

c. each employee in the organization is given permission to makedecisions about their company.

d. managers at various levels throughout the organization aregiven decision-making authority.

A local chain department store grants each of its store managersthe authority to make buying decisions for their stores. Grantingmanagers this kind of authority is found in which type oforganization?

a. Desegmented

b. Centralized

c. Segmented

d. Decentralized

A local chain electronics store does not allow its store ordistrict managers to make important decisions about their stores.The main role of store managers is to supervise employees and makesure day-to-day transactions run smoothly while district managerssupervise store managers and report profitability data back totop-level management. Not allowing store or district managersdecision-making authority is most likely to be found in which typeof organization?

a. Centralized

b. Desegmented

c. Segmented

d. Decentralized

When a few individuals at the top of an organization retaindecision-making authority, the organization is referred to asa(n):

a. investment center.

b. centralized organization.

c. decentralized organization.

d. profit center.

Which of the following statements regarding the structure oforganizations is false?

a. In a decentralized organization, decision-making authority isconfined to top-level management.

b. Decentralization may make it difficult for managers to shareunique and innovative ideas.

c. When decision-making authority is spread among too manymanagers, managers may become so concerned with their own area ofresponsibility that they lose sight of the company's overallfocus.

d. In a decentralized organization, there may be a lack ofcoordination and communication between segments.

Which of the following is an advantage of decentralization?

a. It allows top-level management who normally work at corporateheadquarters to get involved with the day-to-day decisions thatneed to be made at lower levels.

b. It allows managers to focus on their own area ofresponsibility rather than what is best for the company as awhole.

c. It requires very little as far as manager training costs.

d. It allows decisions to be made in a more timely manner.

Which of the following is not an advantage ofdecentralization?

a. It allows lower-level managers to focus on their ownparticular goals and objectives without having to consider theoverall company's goals and objectives.

b. It allows top-level managers more time to devote tolong-range strategic planning.

c. It permits lower-level managers to gain valuable on-the-jobtraining in order to become better managers.

d. It often creates higher job satisfaction for managers.

Which of the following is often not a disadvantage ofdecentralization?

a. Lack of coordination and communication between segments.

b. Higher training costs for lower-level managers.

c. Lack of company focus as lower-level managers may makedecisions that benefit their own particular segment.

d. Decreased job satisfaction for lower-level managers.

Which of the following is a disadvantage ofdecentralization?

a. Lower training costs for lower-level managers.

b. Less timely decisions are able to be made on a day-to-daybasis.

c. Decreased job satisfaction for lower-level managers.

d. Lack of coordination and communication between segments.

"Responsibility accounting" is the concept that says:

a. managers should be responsible for both revenues and costs oftheir particular segment.

b. managers should be held entirely responsible for allinvestment decisions that impact the particular segment in whichthey are in charge.

c. managers should be held responsible for only those thingsunder their control.

d. managers should never be held entirely responsible for thingsthat happen within the particular segment in which they are incharge.

A budget for a single unit of a product or service is called asa:

a. real cost.

b. fixed cost.

c. total cost.

d. standard cost.

Which of the following statements is true regarding the budgetedcost for direct materials?

a. It must be determined after materials are purchased for theyear.

b. It can not be determined if a company uses a just-in-timeinventory system.

c. It would consist of two components - a standard quantity anda standard price.

d. It would be used on a static budget but not a flexiblebudget.

Variance analysis compares:

a. standard costs and actual costs.

b. static budgets and flexible budgets.

c. product costs and period costs.

d. practical standards and ideal standards.

Which of the following statements is false regarding taskanalysis?

a. It uses actual historical data in the determination ofstandard costs.

b. It emphasizes what it should cost to produce a product ratherthan historical costs.

c. It examines the production process in detail.

d. It may involve the use of engineers.

Task analysis:

a. is used to set standard costs.

b. is used to determine the tasks that production employeesshould complete on a daily basis.

c. is used to evaluate employee performance.

d. emphasizes the historical costs of a product.

A(n) ____ is attainable only when near-perfect conditionsexist.

a. static budget

b. ideal standard

c. flexible budget

d. practical standard

In most companies, machines break down occasionally andemployees are often less than perfect. Which type of standardacknowledges these characteristics when determining the standardcost of a product?

a. Practical standard

b. Ideal standard

c. Efficiency standard

d. Budgeted standard

Hathaway Inc. produces and sells golf umbrellas to localresorts. Hathaway anticipates April to be a busy month with thesale of 2,000 umbrellas. The company has prepared the followingstatic budget for April:

Sales revenue (2,000 units)	$60,000
Variable costs:
Direct materials	6,000
Direct labor	8,000
Overhead	2,500
Fixed costs	6,000
Net operating income	$37,500

During April, Hathaway actually produced and sold 2,300 umbrellas.What should be Hathaway's net operating income in April based on aflexible budget?

a. $35,025

b. $43,125

c. $44,025

d. $37,500

Hoppe Inc. manufactures widgets. Management has determined thateach widget has a standard materials cost of $3.50 when 2.5 ouncesof raw material at a cost of $1.40 per ounce are used. The staticbudget for the month of December showed an estimated production of4,000 widgets in December. During December, 4,300 widgets wereactually produced. The actual cost for each widget was $3.60 when2.25 ounces of raw material at a cost of $1.60 per ounce werepurchased and used. What should be the total direct materials costaccording to Hoppe's flexible budget for December?

a. $14,000

b. $15,480

c. $14,400

d. $15,050

Violetta Inc. manufactures plastic storage boxes. Management hasdetermined that each medium-sized box has a standard materials costof $1.20 when 4 pounds of raw material at a cost of $.30 per poundare used. The static budget for the month of March showed anestimated production of 15,000 boxes in March. During March, 17,000boxes were actually produced. The actual cost for each box was$1.56 when 3.9 pounds of raw material at a cost of $.40 per poundwere purchased and used. What should be the total direct materialscost according to Violetta's flexible budget for March?

a. $26,520

b. $23,400

c. $18,000

d. $20,400

All of the following are advantages of decentralizationexcept:

to improve customer relations.

to encourage use of expert knowledge.

to increase employee motivation.

to allow goal congruence to be achieved more easily.

All of the following are responsibility centersexcept:

profit centers.

investment centers.

customer centers.

cost centers.

3. Thedifferences between actual and budgeted figures are known as:

fluctuations.

variances.

overages.

underages.

4. Which of thefollowing is a performance measure commonly used to assess theperformance of investment centers?

Return on investment

Profit margin

Current ratio

Gross income

5. Residualincome is calculated as:

revenues less expenses.

contribution margin less minimum acceptable income.

operating income less minimum acceptable income.

sales less variable costs.

6. Which of thefollowing is NOT a strategy for determining the transfer price of aproduct?

Related party discounted price

Market price

Cost or cost-plus a markup

Negotiated price

7. Employeecapabilities, information system capabilities, and the companyâsâclimate for actionâ are important factors of the:

employee perspective.

customer perspective.

internal business perspective.

learning and growth perspective.

8. AssumeCucumber Company expects each division to earn an 8% target rate ofreturn. Assume the Companyâs Pickle Division had the followingresults:

Sales $24,500,000

Operatingincome 1,250,000

Totalassets 15,500,000

The Divisionâs ROI is:

8.1%.

15.8%.

5.1%.

8.0%.

Assume Ametrine Company expects each division to earn an 8%target rate of return. Assume the Companyâs Division A had thefollowing results:

Sales $24,500,000

Operatingincome 1,250,000

Totalassets 15,500,000

The Divisionâs RI is:

â$10,000.

$10,000.

â$710,000.

$710,000.

10. Which of the followingare examples of KPIs?

Average customer satisfaction ratings

Number of repeat customers

Sales revenue growth

All of the above are examples of KPIs

Which of the following is NOT an advantage of using standardcosts and variances?

Use as a performance benchmark for evaluation of actualcosts

Use as a basis for components of the master budget

Simplification of bookkeeping

Change in behavior of managers to obtain desired variances

One level of a companyâs flexible budget was prepared forproduction of 8,000 units. Total costs were $38,000 and includeddirect materials, direct labor, and variable overhead at $1.50,$2.50, and $0.50 per unit respectively. What is the total cost ofproduction of 8,500 units?

$ 2,000

$38,000

$38,250

$40,250

3. The directlabor price variance was unfavorable and much greater thananticipated. Who would be in the best position to explain why theunfavorable variance occurred?

Both the production and human resource supervisors

The production supervisor

The purchasing manager

Both the purchasing manager and production supervisor

4. A managerpurchased better quality materials for a slightly higher cost thananticipated. However, as a result, there was less spoilage thannormal. What is the effect on the price and quantity variancesrespectively?

Favorable, favorable

Favorable, unfavorable

Unfavorable, favorable

Unfavorable, unfavorable

5. Acompany uses a single raw material in its production process. Thestandard price for a unit of material is $2.00. During the monththe company purchased and used 600 units of this material at aprice of $2.25 per unit. The standard quantity required perfinished product is 2 units and during the month, the companyproduced 310 finished units. How much was the material pricevariance?

$150 favorable

$150 unfavorable

$155 favorable

$155 unfavorable

6. Acompany uses a single raw material in its production process. Thestandard price for a unit of material is $2.00. During the monththe company purchased and used 600 units of this material at aprice of $2.25 per unit. The standard quantity required perfinished product is 2 units and during the month, the companyproduced 310 finished units. How much was the material quantityvariance?

$40 favorable

$40 unfavorable

$45 favorable

$45 unfavorable

7. Acompany produced 2,200 units of output during a production processthat normally requires 2 hours of labor per unit of output. Thestandard labor rate is $16 per hour, but the company paid $15 perhour. Actual hours needed to complete the production process were4,600. How much was the labor efficiency variance?

$3,000 favorable

$3,000 unfavorable

$3,200 favorable

$3,200 unfavorable

8. Acompany produced 2,200 units of output during a production processthat normally requires 2 hours of labor per unit of output. Thestandard labor rate is $16 per hour, but the company paid $15 perhour. Actual hours needed to complete the production process were4,600. How much was the labor rate variance?

$4,400 favorable

$4,400 unfavorable

$4,600 favorable

$4,600 unfavorable

9. Which of thefollowing formulas is used to compute variable overheadrate (or spending) variance?

actual hours Ã (actual rate â standard rate)

standard hours allowed Ã (actual rate â standard rate)

actual rate Ã (actual hours â standard hours allowed)

standard rate Ã (actual hours â standard hours allowed)

10. Which of the followingis a true statement regarding fixed overhead volume variance?

If production volume is less than anticipated, then fixedoverhead has been underallocated and the fixed overhead volumevariance is favorable.

If production volume is less than anticipated, then fixedoverhead has been underallocated and the fixed overhead volumevariance is unfavorable.

If production volume is greater than anticipated, then fixedoverhead has been underallocated and the fixed overhead volumevariance is favorable.

If production volume is greater than anticipated, then fixedoverhead has been overallocated and the fixed overhead volumevariance is unfavorable.

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Accounting ACCT 2620 Study Guide - Quiz Guide: Cost Driver, Profit Center, Variable Cost

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