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Introduction to Management Accounting 17e (Global Edition) By Horngren Sundem Stratton Burgstahler Schatzberg (Test Bank All Chapters, 100% Original Verified, A+ Grade) Introduction to Management Accounting, 17e, GE (Horngren) Chapter 1 Managerial Accounting, the Business Organization, and Professional Ethics 1.1 Questions 1) Which credential is associated with management accountants? A) CPA B) CMA C) CFP D) IMA Answer: B Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 2) The largest U.S. association of professional accountants whose major interest is management accounting is the ________. A) American Institute of Certified Public Accountants B) American Institute of Certified Management Accountants C) Institute of Management Accountants D) American Institute of Management Accountants Answer: C Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 3) ________ is the field that produces information used primarily by managers within an organization. A) Financial accounting B) Management accounting C) Internal auditing D) External auditing Answer: B Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

4) The primary users of management accounting information are ________. A) bankers B) governmental regulatory bodies C) managers in organizations D) managerial accountants Answer: C Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 5) ________ is the field of accounting that develops information for external parties such as stockholders, suppliers, banks and governmental regulatory bodies. A) Auditing B) Internal auditing C) Management accounting D) Financial accounting Answer: D Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 6) Which of the following statements about management accounting is FALSE? A) Management accounting is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating information. B) Management accounting helps managers fulfill organizational objectives. C) Management accounting is used by managerial accountants to make strategic and operational decisions. D) Management accounting produces information for managers in an organization. Answer: C Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

7) When comparing management accounting and financial accounting, which of the following statements is FALSE? A) Management accounting has a future orientation whereas financial accounting has a past orientation. B) Management accounting prepares detailed reports whereas financial accounting prepares summary reports. C) Management accountants are constrained by the principles of reporting promulgated by the Institute of Management Accountants whereas financial accountants are constrained by Generally Accepted Accounting Principles. D) Behavioral considerations are of primary importance in management accounting, but not in financial accounting. Answer: C Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 8) Generally Accepted Accounting Principles are most closely connected to ________. A) management accounting B) financial accounting C) internal auditing D) management auditing Answer: B Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 9) Who provides assurance to external users about the reliability of a company's financial statements? A) Certified Management Accountants and Certified Public Accountants B) Chartered Management Accountants and Certified Management Accountants C) Certified Public Accountants and Chartered Management Accountants D) Certified Public Accountants and Chartered Accountants Answer: D Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

10) Financial reports prepared by financial accountants focus on ________. Financial reports prepared by management accountants focus on ________. A) segments of the organization such as departments and divisions; segments of the organization such as departments and divisions B) the organization as a whole; the organization as a whole C) the organization as a whole; segments of the organization such as departments and divisions D) segments of the organization such as departments and divisions; the organization as a whole Answer: C Diff: 2 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 11) Which of the following organizations oversees the CMA Exam? A) American Institute of Certified Public Accountants B) Chartered Accountants Institute C) Institute of Management Accountants D) American Institute of Certified Management Accountants Answer: C Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 12) Generally Accepted Accounting Principles play an important role in management accounting. Answer: FALSE Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 13) Behavioral considerations are of primary importance in financial accounting. Answer: FALSE Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 14) Financial accounting reports are usually prepared for a period of one year or less. Answer: TRUE Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

15) Reports prepared by managerial accountants have a past orientation. Answer: FALSE Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 16) In some countries outside the United States, independent auditors are called chartered accountants. Answer: TRUE Diff: 1 LO: 1-1 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 1.2 Questions 1) ________ information helps managers focus on operating problems, imperfections, inefficiencies and opportunities. A) Scorekeeping B) Attention directing C) Problem solving D) Performance Answer: B Diff: 1 LO: 1-2 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 2) Problem solving information would NOT be used in which of the following situations? A) decision to make or buy parts for a manufactured product B) decision to replace equipment C) decision to add or drop a division D) evaluating the operating performance of a segment in the current year Answer: D Diff: 2 LO: 1-2 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

3) Investigating the reasons for the variances on a department's performance report is an example of ________. A) scorekeeping B) attention directing C) problem solving D) auditing Answer: B Diff: 2 LO: 1-2 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 4) ________ is the classification, accumulation, and reporting of data that help users understand and evaluate organizational performance. A) Scorekeeping B) Attention directing C) Problem solving D) Cost accounting Answer: A Diff: 1 LO: 1-2 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 5) What type of information is used in making nonroutine decisions, such as the decision to replace a traditional assembly line with fully automated robots? A) scorekeeping information B) attention directing information C) problem solving information D) auditing information Answer: C Diff: 2 LO: 1-2 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 6) How is accounting information prepared by management accountants used within an organization? A) to help operating managers make decisions B) to plan an organization's operations C) to control an organization's operations D) all of the above Answer: D Diff: 1 LO: 1-2 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

7) What are accounting systems? A) The process used to streamline production processes B) The process used to generate performance measures C) Formal mechanisms for gathering, organizing and communicating information about an organization's activities D) none of the above Answer: C Diff: 1 LO: 1-2 AACSB: Reflective thinking skills, Use of information technology Learning Outcome: Describe the basics of managerial accounting and its function within an organization 8) ________ involves an analysis of alternative courses of action and the identification of the best course of action to follow. A) Scorekeeping B) Attention directing C) Problem-solving D) Internal auditing Answer: C Diff: 1 LO: 1-2 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 9) Starbucks generates many financial reports to evaluate the operating performance of each store at the end of each quarter. The financial reports are an example of ________. A) scorekeeping B) attention directing C) problem-solving D) management auditing Answer: A Diff: 1 LO: 1-2 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

10) Starbucks experiments with adding ice cream sundaes to its menu at several stores in the state of Washington Financial reports are prepared showing revenues and costs for the new menu item. Based on the reports, management at the corporate office will then decide whether to permanently add or remove the new menu item. The financial reports are an example of ________ information. A) scorekeeping B) attention directing C) problem-solving D) management auditing Answer: C Diff: 2 LO: 1-2 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 11) Companies produce most ________ and ________ information on a routine basis such as every day, every month or every quarter. A) scorekeeping; problem-solving B) scorekeeping; attention directing C) problem-solving; attention directing D) interim reports; problem-solving Answer: B Diff: 1 LO: 1-2 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 12) A company is setting the price on a special order of a manufactured product routinely made. What type of information is needed to set the price? A) scorekeeping B) attention directing C) problem-solving D) interim reports Answer: C Diff: 2 LO: 1-2 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

13) A company is unsure whether it is more cost efficient to make or buy a component used in a manufactured product that is mass produced. What type of information is needed to make this decision? A) scorekeeping B) attention directing C) problem-solving D) management auditing Answer: C Diff: 2 LO: 1-2 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 14) A company is considering whether to change the mix of products sold. They think it would be more profitable to emphasize the products with the highest profit per unit. What type of information is needed to answer this question? A) scorekeeping B) attention directing C) problem-solving D) internal auditing Answer: C Diff: 2 LO: 1-2 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 15) Planning refers to ________. A) the implementation of organizational plans B) the use of performance reports to evaluate the attainment of organizational objectives C) setting organizational objectives and establishing the path to attain them D) an analysis of alternative courses of action Answer: C Diff: 1 LO: 1-2 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 16) Taco Bell wants to increase profitability of stores in the Midwest by adding new menu items and increasing advertising. This is an experiment and the company is unsure if these actions will be fruitful. On the part of management, this is an example of ________. A) control B) scorekeeping C) feedback D) planning Answer: D Diff: 2 LO: 1-2 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 9 Copyright © 2023 Pearson Education, Ltd.

17) Southern Chicken is expanding the menu items offered in order to increase profitability. Management will evaluate the profitability of each new menu item after six months. Menu items that are profitable will be retained and the others will be discontinued. On the part of management, the evaluation and subsequent actions after six months is an example of ________. A) management auditing B) internal auditing C) planning D) control Answer: D Diff: 1 LO: 1-2 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 18) A manager using information to decide whether to add or drop a product is an example of problem solving. Answer: TRUE Diff: 2 LO: 1-2 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 19) Most scorecard and attention-directing information is produced on a nonroutine basis. Answer: FALSE Diff: 2 LO: 1-2 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 1.3 Questions 1) A(n) ________ is a review to determine whether the policies and procedures specified by top management have been implemented by lower managers. A) management audit B) internal audit C) internal control D) internal accounting control Answer: A Diff: 1 LO: 1-3 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

2) The Foreign Corrupt Practices Act requires ________. A) companies to cease conducting business with companies in some foreign countries B) companies to reject bribes from companies in foreign countries C) companies to have an appropriate system of internal controls D) companies to prepare a separate report on their accounting information system Answer: C Diff: 2 LO: 1-3 AACSB: Dynamics of the global economy Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 3) Performance reports compare actual results to ________. Performance reports also report ________. A) budgeted results; bonuses awarded B) objectives; variances C) planned results; variances D) projected results; stock options granted Answer: C Diff: 1 LO: 1-3 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 4) To evaluate managers' decisions and the productivity of organizational units, organizations use ________. A) annual financial statements B) quarterly financial statements C) bimonthly financial statements D) performance reports Answer: D Diff: 1 LO: 1-3 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 5) An unfavorable variance occurs on a performance report when ________. A) the actual cost is less than the budgeted cost B) the actual revenue is greater than the budgeted revenue C) the actual profit is greater than the budgeted profit D) the actual revenue is less than the budgeted revenue Answer: D Diff: 2 LO: 1-3 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

6) A favorable variance occurs on a performance report when ________. A) the actual cost is greater than the budgeted cost B) the actual revenue is less than the budgeted revenue C) the actual profit is less than the budgeted profit D) the actual profit is greater than the budgeted profit Answer: D Diff: 2 LO: 1-3 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 7) Who is the primary user of performance reports used to plan and control operations? A) management accountants B) CPAs C) operating managers D) chartered accountants Answer: C Diff: 1 LO: 1-3 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 8) When designing an accounting information system for management, which governmental regulations are NOT important? A) Sarbanes-Oxley Act B) Foreign Corrupt Practices Act C) Tax rules promulgated by Internal Revenue Service D) Six Sigma Act Answer: D Diff: 1 LO: 1-3 AACSB: Reflective thinking skills, Use of information technology Learning Outcome: Describe the basics of managerial accounting and its function within an organization 9) What types of variances should be investigated when looking at performance reports? A) all variances B) only favorable and unfavorable variances that are large in size C) only unfavorable variances that are large in size D) only favorable variances that are large in size Answer: B Diff: 2 LO: 1-3 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

10) A budget ________. A) is a quantitative expression of a plan of action B) provides feedback by comparing actual results with planned results C) includes deviations from planned results D) ignores areas that are presumed to be running smoothly Answer: A Diff: 1 LO: 1-3 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 11) Management-by-exception means that managers should ________. A) concentrate on areas that deviate from the plan B) in the absence of other evidence, presume that areas that conform with plans are running smoothly C) A and B D) none of the above Answer: C Diff: 1 LO: 1-3 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

12) The Helium Company held a Christmas party. The company expected attendance of 100 people and prepared the following budget: Hotel room rental Food Entertainment Decorations Total Costs

€500 500 800 300 €2,100

One hundred people attended the party. The following costs were incurred: Hotel room rental Food Entertainment Decorations Total Costs

€575 640 750 350 €2,315

What is the variance for total costs? A) €215 Unfavorable B) €215 Favorable C) €25 Favorable D) €140 Unfavorable Answer: A Diff: 2 LO: 1-3 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

13) The Hermanski Company held a Christmas party. The company expected attendance of 100 people and prepared the following budget: Hotel room rental Food Entertainment Decorations Total Costs

€00 500 800 300 €2,200

One hundred people attended the party. The costs incurred were: Hotel room rental Food Entertainment Decorations Total Costs

€575 640 750 350 €2,315

What is the primary reason for the variance in total costs? A) Hotel room rent cost more than expected. B) Food cost more than expected. C) Entertainment cost more than expected. D) Decorations cost less than expected. Answer: B Diff: 2 LO: 1-3 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

14) Ireland Bank held a party. Ireland Bank expected attendance of 100 people and prepared the following budget: Hotel room rental Food Entertainment Decorations Total Costs

€600 500 800 300 €2,200

One hundred people attended the party. The following costs were incurred: Hotel room rental Food Entertainment Decorations Total Costs

€575 640 750 350 €2,315

What is the variance for the cost of food? A) €115 Unfavorable B) €140 Favorable C) €115 Favorable D) €140 Unfavorable Answer: D Diff: 2 LO: 1-3 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

15) A fraternity held a party. The fraternity prepared the following budget for 25 expected attendees: Room rental Food Entertainment Decorations Total Costs

€50 250 150 75 €625

Twenty-five people attended the party. The following costs were incurred: Room rental Food Entertainment Decorations Total Costs

€240 320 125 75 €760

What is the variance for total costs? A) €90 Unfavorable B) €135 Unfavorable C) €135 Favorable D) €70 Unfavorable Answer: B Diff: 2 LO: 1-3 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

16) A group held a party. The group prepared the following budget for 25 expected attendees: Room rental Food Entertainment Decorations Total Costs

€270 250 150 75 €745

Twenty-five people attended the party. The costs incurred were: Room rental Food Entertainment Decorations Total Costs

€140 320 125 75 €660

What is the variance for the room rental cost? A) €85 Unfavorable B) €85 Favorable C) €130 Favorable D) €130 Unfavorable Answer: C Diff: 2 LO: 1-3 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 17) Variances are deviations from planned results. Answer: TRUE Diff: 1 LO: 1-3 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 18) Management by exception is the practice of ignoring areas that deviate from the plan. Answer: FALSE Diff: 1 LO: 1-3 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 19) A budget is a qualitative expression of a plan of action. Answer: FALSE Diff: 1 LO: 1-3 AACSB: Reflective thinking skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization

20) The management accountant prepares the following performance report for a company's first year of operations: Budget Actual Variance Sales €100,000 €110,000 ? Cost of Goods Sold 50,000 45,000 ? Selling Expenses 20,000 19,000 ? Administrative Expenses 10,000 11,000 ? Operating Income €20,000 €35,000 ? Required: A) Compute variances for each line item on the income statement. Also indicate if the variances are favorable or unfavorable. Answer: A) Budget Actual Variance Sales €100,000 €110,000 €10,000 F Cost of Goods Sold 50,000 45,000 5,000 F Selling Expenses 20,000 19,000 1,000 F Administrative Expenses 10,000 11,000 1,000 U Operating Income €20,000 €35,000 €15,000 F Diff: 2 LO: 1-3 AACSB: Analytic skills Learning Outcome: Describe the basics of managerial accounting and its function within an organization 1.4 Questions 1) Which of the following items should be considered by managers when designing accounting systems? A) cost-benefit balances B) behavioral implications C) cost-benefit balances and behavioral implications D) none of the above Answer: C Diff: 1 LO: 1-4 AACSB: Reflective thinking skills, Use of information technology Learning Outcome: Describe the basics of managerial accounting and its function within an organization 2) ________ is (are) the primary consideration in choosing among accounting systems. A) Simplicity B) Behavioral implications C) The cost-benefit balance D) Simplicity and behavioral implications Answer: C Diff: 1 LO: 1-4 AACSB: Reflective thinking skills, Use of information technology Learning Outcome: Describe the basics of managerial accounting and its function within an organization 19 Copyright © 2023 Pearson Education, Ltd.

3) ________ is (are) the accounting system's effect on the behavior and the decisions of managers. A) Simplicity B) Behavioral implications C) The cost-benefit balance D) The code of ethics Answer: B Diff: 1 LO: 1-4 AACSB: Reflective thinking skills, Use of information technology Learning Outcome: Describe the basics of managerial accounting and its function within an organization 4) When designing an accounting information system, the cost to acquire additional information should be incurred ________. A) at all times so the operating manager has more information to make decisions B) when information overload does not occur C) at all times because the benefit cannot be quantified D) when the expected benefit of an improved decision exceeds the cost of the information Answer: D Diff: 2 LO: 1-4 AACSB: Reflective thinking skills, Use of information technology Learning Outcome: Describe the basics of managerial accounting and its function within an organization 5) When developing a price for a new product, the price must cover ________. A) costs in phase-out and product development cycles only B) costs in mature market and introduction to market cycles only C) costs in product development and phase-out cycles plus direct production costs D) costs incurred in all stages of the product life cycle Answer: D Diff: 2 LO: 1-4 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 6) During the product development stage of the product life cycle, companies typically experience ________. A) revenues and no costs B) costs and no revenues C) both costs and revenues D) neither costs nor revenues Answer: B Diff: 2 LO: 1-4 AACSB: Analytic skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

7) When does a company earn the majority of revenue for a product that goes through the product life cycle? A) phase-out of product and introduction to market stages B) introduction to market and mature market stages C) product development and mature market stages D) mature market and phase-out of product stages Answer: B Diff: 2 LO: 1-4 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 8) Which stage of the product life cycle has a stable sales level? A) product development stage B) introduction to market stage C) mature market stage D) phase-out of product stage Answer: C Diff: 2 LO: 1-4 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 9) The various stages through which a product passes are called the ________. A) value chain B) product life cycle C) performance plan D) product performance plan Answer: B Diff: 1 LO: 1-4 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 10) Product life cycles may range from a few months to many years. Answer: TRUE Diff: 1 LO: 1-4 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 11) The product life cycle for an automobile is usually a few months. Answer: FALSE Diff: 1 LO: 1-4 AACSB: Analytic skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

12) The cost-benefit balance is the primary consideration in choosing among accounting systems. Answer: TRUE Diff: 1 LO: 1-4 AACSB: Reflective thinking skills, Use of information technology Learning Outcome: Describe the basics of managerial accounting and its function within an organization 13) The behavioral implications of an accounting system refer to the system's effects on the firm's customers. Answer: FALSE Diff: 1 LO: 1-4 AACSB: Reflective thinking skills, Use of information technology Learning Outcome: Describe the basics of managerial accounting and its function within an organization 14) Additional costly information should be acquired when the expected benefit of an improved decision exceeds the cost of the information. Answer: TRUE Diff: 1 LO: 1-4 AACSB: Reflective thinking skills, Use of information technology Learning Outcome: Describe the basics of managerial accounting and its function within an organization 1.5 Questions 1) Marketing is the function of the value chain that involves ________. A) the mechanism by which a company delivers products or services to the customer B) the manner by which individuals or groups learn about the value and features of products or services C) selling activities and delivery activities D) selling activities and customer service Answer: B Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 2) Distribution is the function of the value chain that involves ________. A) the mechanism by which a company delivers products or services to the customer B) the manner by which individuals or groups learn about the value and features of products or services C) the support activities provided to the customer D) none of the above Answer: A Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

3) Research and development is the function of a value chain that involves ________. A) the detailed design and engineering of products, services or processes B) the generation of ideas related to new products, services or processes C) the generation of ideas related to new products only D) the detailed design and engineering of new processes Answer: B Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 4) The detailed design and engineering of products, services or processes is called the ________ function in the value chain. A) research and development B) design C) engineering D) production Answer: B Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 5) The function of the value chain that provides support activities to the customer is called ________. A) marketing B) distribution C) customer service D) consumer relations Answer: C Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 6) Advertising is an example of the ________ function of the value chain. A) distribution B) selling C) marketing D) promotion Answer: C Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

7) A telephone hotline is established for customers to call with questions about a new electronic device. This is an example of the ________ function in the ________. A) marketing; value chain B) distribution; value chain C) customer service; value chain D) marketing; product life cycle Answer: C Diff: 2 LO: 1-5 AACSB: Analytic skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 8) An example of a staff department at a clothing manufacturer is the ________. A) pressing department B) cutting department C) sewing department D) maintenance department Answer: D Diff: 2 LO: 1-5 AACSB: Analytic skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 9) According to the Financial Executives Institute, a function of the controller is ________. A) investments B) short-term financing C) provision of capital D) reporting and interpreting Answer: D Diff: 2 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 10) According to the Financial Executives Institute, a function of the treasurer is ________. A) reporting and interpreting B) short-term financing C) protection of assets D) government reporting Answer: B Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

11) The ________ is mainly concerned with the company's operating matters whereas the ________ is mainly concerned with the company's financial matters. A) treasurer; controller B) controller; treasurer C) managerial accountant; financial accountant D) chief executive officer; chief financial officer Answer: B Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 12) Accountants play a role in supporting ________ of the value-chain functions. A) some B) none C) about half D) all Answer: D Diff: 2 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 13) A new weight loss product is sold by a mail-order system. The mail-order system is an example of the ________ function in the value chain. A) marketing B) production C) customer service D) distribution Answer: D Diff: 2 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 14) Each value chain function should focus on activities that ________. A) create profits for the seller B) create bonuses for top management C) create higher stock prices for the company's stock D) create value for the customer Answer: D Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

15) What type of managers is directly involved with making and selling an organization's products? A) staff managers B) line managers C) management accountants D) accounting managers Answer: B Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 16) What type of managers supports line managers by providing information and advice? A) staff managers B) operating managers C) assembly room managers D) welding room managers Answer: A Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 17) In a typical manufacturing factory, staff functions do NOT include ________. A) inspection B) storeroom C) maintenance D) welding Answer: D Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 18) In a typical manufacturing factory, line functions do NOT include ________. A) purchasing B) stamping C) welding D) assembly Answer: A Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

19) The value chain refers to the various stages through which a product passes. Answer: FALSE Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 20) Accountants support only some of the value-chain functions. Answer: FALSE Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 21) Line managers are directly involved with making and selling the organization's products or services. Answer: TRUE Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 22) Staff managers give advice to line managers and have authority over line managers. Answer: FALSE Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 23) The maintenance department provides line support to the welding department in a factory. Answer: FALSE Diff: 2 LO: 1-5 AACSB: Analytic skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 24) Specialization by individuals in organizations is being replaced by decision-making by crossfunctional teams. Answer: TRUE Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

25) One of a controller's responsibilities is risk management. Answer: FALSE Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 26) One of a treasurer's responsibilities is tax administration. Answer: FALSE Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 27) The controller is primarily concerned with a company's financial matters and the treasurer is concerned with a company's operating matters. Answer: FALSE Diff: 1 LO: 1-5 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 1.6 Questions 1) Which of the following is a major factor causing changes in management accounting today? A) additional value chain functions B) small advances in technology C) shift to manufacturing-based economy D) increased global competition Answer: D Diff: 1 LO: 1-6 AACSB: Dynamics of the global economy, Use of information technology Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 2) Which company is NOT a service organization? A) Affiliated Dermatologists B) Michael Flynn Dentistry C) Lowe's Home Improvement Store D) United Internists Answer: C Diff: 1 LO: 1-6 AACSB: Analytic skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

3) All service organizations are similar in that ________. A) they are labor intensive B) output is easy to measure C) major inputs and outputs can be stored D) they are capital intensive Answer: A Diff: 1 LO: 1-6 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 4) Wal-Mart buys Halloween candy from a candy company in Hershey, Pennsylvania. This is an example of a(n) ________. A) A2B transaction B) B2B transaction C) B2C transaction D) C2B transaction Answer: B Diff: 1 LO: 1-6 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 5) Which statement is FALSE concerning Enterprise Resource Planning (ERP) systems? A) Accounting is one part of an ERP system. B) Accountants must work with operating managers throughout the organization to ensure that the ERP system provides the financial information that managers need. C) ERP systems support all functional areas of a company. D) SAP is not a provider of ERP systems. Answer: D Diff: 1 LO: 1-6 AACSB: Use of information technology Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 6) Which of the following is NOT a new direction in business process management? A) JIT philosophy B) XBRL C) Six Sigma D) TQM Answer: B Diff: 1 LO: 1-6 AACSB: Use of information technology Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

7) Which statement about service organizations is FALSE? A) Service organizations include law firms, banks, insurance companies and hospitals. B) Service organizations do not make or sell tangible goods. C) The service sector accounts for the majority of the employment in the United States. D) Managers in service organizations do not need as much accounting information as their counterparts in other types of organizations. Answer: D Diff: 2 LO: 1-6 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 8) Examples of business process reengineering do NOT include ________. A) computer-aided design B) computer-aided manufacturing C) robots D) labor-intensive machines Answer: D Diff: 2 LO: 1-6 AACSB: Reflective thinking skills, Use of information technology Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 9) What is lean manufacturing? A) eliminating the time products spend in activities that do not add value B) reducing the time products spend in the production process C) reducing the amount of inventories by ordering raw materials only when needed and making products only when ordered by customers D) continuous process improvements to eliminate waste from the entire enterprise Answer: D Diff: 2 LO: 1-6 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 10) Which statement about TQM is FALSE? A) TQM focuses on product quality. B) TQM minimizes costs by maximizing quality. C) TQM focuses on the prevention of defects and on customer satisfaction D) Management accountants have no role in the application of TQM. Answer: D Diff: 1 LO: 1-6 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

11) What is Six Sigma? A) a process improvement to eliminate waste from the entire enterprise B) a process improvement to reduce the time products spend in the production process C) a process improvement to reduce the time products spend in activities that do not add value D) a data-driven approach to eliminate defects in any process Answer: D Diff: 2 LO: 1-6 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 12) Why do changes in business process management affect management accounting? A) Management accountants are experts in designing plant layout changes. B) Management accountants specialize in designing manufacturing cells to streamline production processes. C) They all affect product costs and management accountants measure product costs. D) They all affect the number of workers employed and management accountants are involved in human resources. Answer: C Diff: 1 LO: 1-6 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 13) Which statement about JIT is FALSE? A) JIT minimizes inventories of raw materials, work in process and finished goods. B) JIT eliminates non-value-added activities such as inspection. C) JIT decreases the amount of time products spend in the production process. D) JIT focuses on customer satisfaction and the prevention of defects. Answer: D Diff: 2 LO: 1-6 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 14) A chemical plant has changed the production process for several chemicals. Computers now run the new equipment and robots have replaced most of the workers. What new activities should the accounting system undertake now? A) Develop new product costs using new equipment and robots. B) Develop fringe benefit packages for remaining workers. C) Develop schedules for production setups and runs. D) Develop uses for idle plant capacity. Answer: A Diff: 2 LO: 1-6 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

15) The essence of the just-in-time philosophy is to eliminate waste. Answer: TRUE Diff: 1 LO: 1-6 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 16) Computer-integrated manufacturing systems do not use robots. Answer: FALSE Diff: 1 LO: 1-6 AACSB: Use of information technology, Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 17) XBRL is an integrated information system that supports all functional areas of a business. Answer: FALSE Diff: 1 LO: 1-6 AACSB: Use of information technology, Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 18) Many companies derive their competitive advantage from their information, not their physical facilities. Answer: TRUE Diff: 1 LO: 1-6 AACSB: Reflective thinking skills Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 1.7 Questions 1) Here is a statement from the International Code of Ethics for Professional Accountants drafted by the International Ethics Standards Board for Accountants (IESBA) of the International Federation of Accountants (IFAC): A professional accountant is required “to exercise professional or business judgment without being compromised by bias, conflict of interest or undue influence of, or undue reliance on, individuals, organizations, technology or other factors.” This statement comes from the fundamental principle of ________. A) credibility B) confidentiality C) objectivity D) professional responsibility Answer: C Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

2) According to the International Code of Ethics for Professional Accountants, the fundamental principle of professional competence and due care states that each member is required to ________. A) respect the confidentiality of information acquired B) act diligently and in accordance with applicable technical and professional standards C) be straightforward and honest in all professional relationships D) comply with relevant laws and regulations Answer: B Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 3) This is a statement from the International Code of Ethics for Professional Accountants: “A professional accountant is required to respect the confidentiality of information acquired as a result of professional and business relationships.” This statement comes from the fundamental principle of _______. A) competence B) confidentiality C) integrity D) credibility Answer: B Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 4) According to the International Code of Ethics for Professional Accountants, the fundamental principle of integrity includes ________. A) being straightforward and honest in all professional relationships B) being straightforward and honest in all business relationships C) both A and B D) Neither A nor B Answer: C Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

5) Susanna is the management accountant at Slow Company. Her close friend, Leslie, is a shareholder in Slow Company. Leslie asks Susanna for information about Slow Company that is typically available only to executive officers in the company. If Susanna shares this information with Leslie, Susanna violates the fundamental principle of ________. A) competence B) confidentiality C) integrity D) objectivity Answer: B Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 6) Jennifer is the management accountant in Beck Company. A supplier to Beck Company offers Jennifer free tickets to several NASCAR races. If Jennifer accepts the supplier's offer, she violates the fundamental principle of ________. A) competence B) confidentiality C) credibility D) integrity Answer: D Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 7) The fundamental principle of confidentiality requires each member to ________. A) respect the confidentiality of information acquired as a result of professional relationships B) respect the confidentiality of information acquired as a result of business relationships C) both A and B D) Neither A nor B Answer: C Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

8) The fundamental principle of objectivity includes all of the following EXCEPT ________. A) professional or business judgement should be exercised without being compromised by bias B) professional or business judgement should be exercised without being compromised by conflict of interest C) professional or business judgement should be exercised without being compromised by undue influence of individuals D) professional or business judgement should be exercised following the undue influence of organizations Answer: D Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 9) According to the International Code of Ethics for Professional Accountants, the principle of professional competence and due care requires ________. A) attaining and maintaining professional knowledge and skill at the level required to ensure that a client or employing organization receives competent professional service B) acting diligently and in accordance with applicable technical and professional standards C) both A and B D) None of the above Answer: C Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 10) The International Ethics Standards Board for Accountants (IESBA) of IFAC has adopted a set of fundamental principles of ethics which includes ________. A) professional competence, integrity, confidentiality, and objectivity B) professional competence, confidentiality, professional behavior, and objectivity C) professional competence, confidentiality, professional behavior, objectivity, and integrity D) professional competence, integrity, morality, and confidentiality Answer: C Diff: 1 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

11) You are a management accountant in a large company. You have observed unethical behavior by your immediate supervisor. Which of the following courses of action should NOT be taken? A) Follow the organization's established policies on the resolution of ethical conflict. B) Discuss the issue with your immediate supervisor. C) Consult your own attorney. D) Present the issue to the next level of management. Answer: B Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 12) Scott is a management accountant in a large company. Scott observed unethical behavior by a coworker who is also a management accountant. The coworker is a relative of the company's president and he always receives preferential treatment. Scott observed the coworker putting office supplies and small pieces of electronic equipment in his briefcase. The company does not have a code of ethics or a set of policies for ethical problems. What course of action should Scott take? A) He should report the observation to the police. The coworker is stealing from the company. B) He should report the observation to his immediate supervisor. C) He should report the observation to the Securities and Exchange Commission. D) He should do nothing. Answer: B Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities, Reflective Thinking Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 13) According to the Financial Executive, which of the following situations create pressures for unethical behavior? A) emphasis on long-term results B) upward trends in the economy C) ignoring small lapses in ethical behavior D) rising stock prices Answer: C Diff: 1 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

14) John is a management accountant at DAP Inc. John has reason to believe that his immediate supervisor (the controller), the chief financial officer and the company president are engaged in accounting fraud that involves overstating assets and understating liabilities. The company does not have a code of ethics or a set of policies for ethical problems. What should John do in this context? A) Report the suspected wrongdoings to the local police. B) Discuss the suspected wrongdoings with his immediate supervisor. C) Discuss the suspected wrongdoings with the company president. D) Report the suspected wrongdoings to the audit committee or the board of directors. Answer: D Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities, Reflective Thinking Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 15) According to the International Code of Ethics for Professional Accountants, management accountants should follow fundamental principles of ethics that include ________. A) integrity, objectivity, professional competence and due care B) integrity, objectivity, professional competence and due care, confidentiality and professional behavior C) integrity, objectivity, professional competence and due care, confidentiality D) integrity, professional competence and due care, confidentiality, professional behavior Answer: B Diff: 1 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 16)The fundamental principle of professional behavior under the International Code of Ethics for Professional Accountants includes all of the following EXCEPT ________. A) comply with relevant laws and regulations B) behave in a manner consistent with the profession’s responsibility to act in the public interest in all professional activities and business relationships C) avoid any conduct that the professional accountant knows or should know might discredit the profession D) refrain from engaging in any conduct that would prejudice carrying out duties ethically Answer: D Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

17) The International Code of Ethics for Professional Accountants suggest that professional accountants

must “exercise professional or business judgment without being compromised by bias, conflict of interest or undue influence of, or undue reliance on, individuals, organizations, technology or other factors.” This statement comes from the fundamental principle of ___________ . A) integrity B) confidentiality C) competence D) objectivity Answer: D Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 18) If an employee observes unethical behavior in an organization, the employee is first obligated to ________. A) report the behavior to the police B) report the behavior to his or her supervisor C) report the behavior to the Securities and Exchange Commission D) follow the company's policies for unethical behavior Answer: D Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 19) A code of conduct is a document specifying the ethical standards of an organization. Answer: TRUE Diff: 1 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 20) The Sarbanes-Oxley Act requires companies to disclose whether the company has adopted a code of ethics for senior financial officers. Answer: TRUE Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 21) The corporate culture is a larger influence on the ethical climate of an organization than a code of ethics. Answer: TRUE Diff: 1 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 38 Copyright © 2023 Pearson Education, Ltd.

22) In the code of conduct developed by the International Ethics Standards Board for Accountants (IESBA), integrity is one of the fundamental principles of ethics explained. Answer: TRUE Diff: 1 LO: 1-7 AACSB: Ethical understanding and reasoning abilities Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting 23) Paul Satorius is the controller at ANEW Corporation. The company is not publicly traded. ANEW Corporation just received a patent on a new product that is supposed to revolutionize the music industry. As the moment, however, ANEW Corporation is experiencing financial difficulties and is on the verge of defaulting on a note held by the bank. At the end of the most recent fiscal year, the company's president instructed Paul to ignore recording some invoices. Paul objected because the invoices represented true liabilities at fiscal year end. However, the president insisted that the invoices should be recorded next year so that current liabilities reported on the balance sheet at the end of the current year are lower. The bank is closely following the amount of current liabilities reported by ANEW Corporation as an indicator of solvency. Required: What should Paul do? Follow the guidelines offered by the International Code of Ethics for Professional Accountants. Answer: Paul should follow the company's policies on resolving an ethical conflict. If these policies do not resolve the conflict, then Paul should: 1. report the ethical conflict to the audit committee, executive committee, board of directors, board of trustees or owners of the company 2. consult his own attorney as to legal obligations and rights concerning the ethical conflict. In the end, Paul may have to consider ending his employment with ANEW Corporation. Diff: 2 LO: 1-7 AACSB: Ethical understanding and reasoning abilities, Reflective Thinking Learning Outcome: Discuss the legal, ethical and business concepts that affect managerial accounting

Introduction to Management Accounting, 17e, GE (Horngren) Chapter 2 Introduction to Cost Behavior and Cost-Volume-Profit Relationships 2.1 Questions 1) Why is it important to identify the most appropriate cost drivers for a particular product? A) so managers can identify the activities necessary to manufacture a product B) so managers can control product costs better C) so managers can predict product costs better and make better decisions D) B and C Answer: D Diff: 1 LO: 2-1 AACSB: Reflective thinking skills Learning Outcome: None 2) A brainstorming group in the Research and Development area is charged with developing new product ideas for the company. What is a good cost driver of the cost of this activity? A) number of parts in new products proposed B) number of new product proposals C) number of workers D) number of engineering hours Answer: B Diff: 1 LO: 2-1 AACSB: Reflective thinking skills Learning Outcome: None 3) Janitors clean the factory at the end of each workday. The wages of the janitors are used to determine the cost of the only manufactured product in the factory. What is a good cost driver for the wages of the janitors? A) number of janitors B) number of kilowatt hours used C) number of machine hours on cleaning machines D) number of labor hours worked by janitors Answer: D Diff: 1 LO: 2-1 AACSB: Reflective thinking skills Learning Outcome: None

4) Janitors clean the factory with scrubbing machines and polishing machines. Scrubbing machines scrub the factory floor and polishing machines polish the floor. The cost associated with cleaning the factory is treated as a product cost. What is a good cost driver for the Depreciation Expense associated with the scrubbing and polishing machines? A) number of janitors operating machines B) number of labor hours put in by janitors C) number of kilowatt hours used D) number of machine hours used Answer: D Diff: 1 LO: 2-1 AACSB: Reflective thinking skills Learning Outcome: None 5) Cost drivers are ________. A) the different functions in the value chain B) different types of functional areas in the firm C) measures of activities that require the use of resources and thereby cause costs D) different types of cost calculations Answer: C Diff: 2 LO: 2-1 AACSB: Reflective thinking skills Learning Outcome: None 6) Consider the following activity: The installation of seats by an airplane manufacturer in a commercial airplane. What is an appropriate cost driver for the labor resources used for this activity? A) number of service center hours B) number of labor hours used to install seats C) number of mechanic hours D) number of engineering hours Answer: B Diff: 2 LO: 2-1 AACSB: Analytic skills Learning Outcome: None 7) Consider the following activity: The manufacturer in a commercial airplane. What is an appropriate cost driver for the cost of the seats? A) number of seats installed B) number of labor hours used to install seats C) number of mechanic hours D) number of engineering hours Answer: A Diff: 2 LO: 2-1 AACSB: Analytic skills Learning Outcome: None 2 Copyright © 2023 Pearson Education, Ltd.

2.2 Questions 1) Within the relevant range, the total amount of ________ cost changes in direct proportion to changes in the cost driver. Within the relevant range, the total amount of ________ cost does not change in direct proportion to changes in the cost driver. A) fixed; variable B) variable; fixed C) step; mixed D) mixed; step Answer: B Diff: 2 LO: 2-2 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 2) As cost-driver level decreases in the relevant range, fixed costs per unit of cost driver ________, but total fixed costs ________. A) increase; do not change B) decrease: do not change C) do not change; increase D) do not change; decrease Answer: A Diff: 2 LO: 2-2 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 3) As cost-driver level increases in the relevant range, a fixed cost does not change ________, but the fixed cost ________ becomes progressively smaller. A) per unit of cost driver; total B) in total; per unit of cost driver C) per-unit; per unit of cost driver D) in total; per year Answer: B Diff: 1 LO: 2-2 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs

4) As the cost-driver level increases in the relevant range, variable costs per unit of cost driver ________ but total variable costs ________. A) do not change; increase in direct proportion to the cost-driver activity level B) do not change; decrease in direct proportion to the cost-driver activity level C) increase; do not change D) decrease; do not change Answer: A Diff: 1 LO: 2-2 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 5) Which of the following costs is a variable cost? A) rental expense for factory building for manufacturer of electronics B) lease cost for factory machine for manufacturer of electronics C) fuel for airplane for airline D) depreciation expense of airplane for airline Answer: C Diff: 1 LO: 2-2 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 6) What happens when the cost-driver level increases within the relevant range? A) Total fixed costs remain unchanged. B) Fixed costs per unit of cost driver increase. C) Total variable costs decrease. D) Variable costs per unit of cost driver increase. Answer: A Diff: 2 LO: 2-2 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 7) What happens when the cost-driver activity level increases within the relevant range? A) Total fixed costs increase. B) Fixed costs per unit of cost driver decrease. C) Total variable costs decrease. D) Variable costs per unit of cost driver decrease. Answer: B Diff: 2 LO: 2-2 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs

8) What happens when the cost-driver activity level decreases within the relevant range? A) Total fixed costs increase. B) Fixed costs per unit of cost driver decrease. C) Total variable costs decrease. D) Variable costs per unit of cost driver decrease. Answer: C Diff: 2 LO: 2-2 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 9) What happens when the cost-driver activity level decreases within the relevant range? A) Total fixed costs increase. B) Fixed costs per unit of cost driver decrease. C) Total variable costs increase. D) Variable costs per unit of cost driver are unchanged. Answer: D Diff: 2 LO: 2-2 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 10) Which of the following costs is a fixed cost? A) cost of dairy ingredients used to produce ice cream B) depreciation expense on factory building C) fuel used by delivery trucks D) labor wages of workers who mix dairy ingredients to make ice cream Answer: B Diff: 2 LO: 2-2 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 11) An increase in total variable costs usually indicates that ________. A) the cost-driver activity level is decreasing B) the cost-driver activity level is increasing C) variable costs per unit is decreasing D) fixed costs per unit is increasing Answer: B Diff: 2 LO: 2-2 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs

12) The relevant range applies to ________. A) variable costs only B) fixed costs only C) fixed costs and variable costs D) none of the above Answer: C Diff: 2 LO: 2-2 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 13) Total fixed costs increase when the cost-driver level increases in the relevant range. Answer: FALSE Diff: 1 LO: 2-2 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 14) The relevant range is the limit of cost-driver level within which a specific relationship between costs and the cost driver is valid. Answer: TRUE Diff: 1 LO: 2-2 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 15) Total variable costs increase when the cost-driver level increases in the relevant range. Answer: TRUE Diff: 2 LO: 2-2 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 16) Variable costs per unit of the cost driver increase when the cost-driver level increases in the relevant range. Answer: FALSE Diff: 2 LO: 2-2 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs

2.3 Questions 1) Two types of costs that each combine fixed cost and variable cost behaviors are ________ and ________. A) capacity costs; incremental costs B) semi-fixed costs; semivariable costs C) composite costs; average costs D) step costs; mixed costs Answer: D Diff: 2 LO: 2-3 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 2) If an individual chunk of step costs applies to a large range of cost-driver activity, the step costs are treated as ________ within that range. A) variable costs B) mixed costs C) fixed costs D) semivariable costs Answer: C Diff: 2 LO: 2-3 AACSB: Reflective thinking skills Learning Outcome: None 3) If individual cost steps are uniform and the decision being made spans a number of steps, the step costs are treated as a ________. A) fixed cost B) mixed cost C) incremental cost D) variable cost Answer: D Diff: 2 LO: 2-3 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 4) With mixed costs, the ________ element is unchanged over the relevant range and the ________ element varies proportionately with cost-driver activity. A) variable cost; fixed cost B) fixed cost; variable cost C) fixed cost; step cost D) step cost; variable cost Answer: B Diff: 2 LO: 2-3 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 7 Copyright © 2023 Pearson Education, Ltd.

5) With mixed costs, the fixed cost element is viewed as the ________ and the variable cost element is viewed as the ________. A) step cost; cost of capacity B) cost of capacity; incremental cost of using capacity C) variable cost; cost of capacity D) step cost; mixed cost Answer: B Diff: 2 LO: 2-3 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 6) Costs that change abruptly at different levels of activity because the resources are available only in indivisible chunks are called ________. A) mixed costs B) variable costs C) fixed costs D) step costs Answer: D Diff: 1 LO: 2-3 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 7) In a small construction firm, a crew supervisor is added for every ten workers employed. The salaries of the crew supervisors are a ________. A) variable cost B) mixed cost C) step cost D) fixed cost Answer: C Diff: 2 LO: 2-3 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs

8) Which example is NOT a step cost? A) When oil and gas exploration activity reaches a certain level in a given area, a company leases an additional rig. The lease cost of the rigs is a step cost. B) When ten nurses are added to a shift, a nursing supervisor is also added to the shift. The salaries of the nursing supervisors are a step cost. C) When a telemarketing company adds ten workers to a shift, a supervisor is also added to the shift. The salaries of the supervisors are a step cost. D) When a manufacturing company ceases production, a skeleton crew of maintenance workers continues to work, but the rest are terminated. When production resumes, maintenance workers are rehired in direct proportion to the amount of production. The wages of the maintenance workers are a step cost. Answer: D Diff: 2 LO: 2-3 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 9) A compensation plan where the sales force is paid salary plus commission is a ________. A) purely variable cost B) mixed cost C) step cost D) fixed cost Answer: B Diff: 1 LO: 2-3 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 10) Step costs change abruptly at different levels of cost-driver activity. Answer: TRUE Diff: 1 LO: 2-3 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 11) Mixed costs are composed of only fixed costs. Answer: FALSE Diff: 1 LO: 2-3 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs

2.4 Questions 1) A cost-volume-profit graph has a line for ________ and a line for ________. A) revenues; variable costs only B) revenues; fixed costs only C) revenues; total costs D) net profit; net loss Answer: C Diff: 2 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 2) The break-even point on the cost-volume-profit graph is where the ________. A) total cost line intersects the net profit line B) total cost line intersects the net loss line C) revenue line intersects the total cost line D) revenue line intersects the variable cost line Answer: C Diff: 2 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 3) On a cost-volume-profit graph, the vertical distance between the Revenue line and the Total Cost line represents ________ or ________. A) mixed cost; step cost B) variable cost; fixed cost C) net profit; net loss D) step cost; fixed cost Answer: C Diff: 2 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 4) To construct the Total Cost line on a cost-volume-profit graph, plot ________ and then plot ________. A) mixed costs; step costs B) step costs; mixed costs C) fixed costs; variable costs D) fixed costs; fixed costs plus variable costs Answer: D Diff: 2 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None

5) On a cost-volume-profit graph, when the Total Cost line is higher than the Total Revenue line, the difference represents ________. A) net income B) a positive return on the investment C) a net loss D) not enough information is presented Answer: C Diff: 2 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 6) It is misleading to call a cost-volume-profit graph a break-even graph. Why? A) The graph reveals more information than the break-even point. B) The graph does not show the break-even point. C) The main purpose of the graph is to show the cost drivers for different activity levels. D) The main purpose of the graph is to show the margin of safety. Answer: A Diff: 2 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 7) If a company faces declining sales over time, it must restructure its costs to break-even at a lower volume. In order to carry this out, what costs can be reduced? A) variable costs only B) fixed costs only C) variable and fixed costs D) step costs only Answer: C Diff: 2 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 8) On a cost-volume-profit graph, the net profit area is found ________. A) at the break-even point B) to the right of the break-even point C) to the left of the break-even point D) to the right of the intersection of the y-axis and x-axis Answer: B Diff: 2 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None

9) On a cost-volume-profit graph, at the point where the Total Revenue line intersects the Total Cost line, ________. A) net income is positive B) net income is negative C) net income is zero D) not enough information is given Answer: C Diff: 2 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 10) The horizontal axis on the cost-volume-profit graph is the ________. A) dollars of cost B) sales volume in units C) dollars of revenue D) net income Answer: B Diff: 1 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 11) The vertical axis on the cost-volume-profit graph is the ________. A) dollars of net profit B) sales volume in units C) margin of safety D) dollars of cost and revenue Answer: D Diff: 1 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 12) Which of the following is NOT an underlying assumption of cost-volume-profit analysis? A) We can classify expenses into fixed and variable categories. B) In multiproduct companies, sales mix will be constant. C) Revenues and expenses are linear over the relevant range. D) The inventory level changes significantly during the period. Answer: D Diff: 1 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None

13) The break-even point is located at the intersection of the total revenue line and the total costs line on a cost-volume-profit graph. Answer: TRUE Diff: 2 LO: 2-4 AACSB: Analytic skills Learning Outcome: None 14) The CVP graph shows how costs behave over different relevant ranges. Answer: FALSE Diff: 2 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 15) The horizontal axis on the CVP graph is the dollars of cost and revenue. Answer: FALSE Diff: 1 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 16) The CVP graph uses the assumption that costs are linear over the relevant range. Answer: TRUE Diff: 1 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 17) An assumption of the CVP analysis is that changes in efficiency are expected. Answer: FALSE Diff: 1 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 18) The sales mix is the relative proportions or combinations of quantities of different products that constitute total sales. Answer: TRUE Diff: 1 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None

19) An assumption of the CVP analysis is that the sales mix can fluctuate. Answer: FALSE Diff: 1 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: None 20) The break-even point is the level of revenue at which revenue equals fixed costs. Answer: FALSE Diff: 1 LO: 2-4 AACSB: Reflective thinking skills Learning Outcome: Perform fundamental CVP calculations 2.5 Questions 1) Herman Loebl Company, a producer of salsa, has the following information: Income tax rate Selling price per unit Variable cost per unit Total fixed costs

30% €8.00 €3.00 €90,000.00

The contribution margin per unit is ________. A) €2.00 B) €3.00 C) €5.00 D) €8.00 Answer: C Diff: 1 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 2) Kaprelian Company sells desks at €480 per desk. The variable costs are €300 per desk. Total fixed costs for the period are €400,000. The contribution margin ratio is ________. A) 22.5% B) 37.5% C) 40.6% D) 62.5% Answer: B Diff: 1 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations

3) Gnat Company, a producer of electronic devices, has the following information: Selling price per unit Variable cost per unit Total fixed costs

€5.00 €3.00 €90,000.00

The contribution-margin ratio is ________. A) 30% B) 40% C) 60% D) 100% Answer: B Diff: 1 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 4) Suppose a hotel has annual fixed costs applicable to its rooms of €2.0 million for its 300-room hotel. Average daily room rents are €50 per room and average variable costs are €10 for each room rented. It operates 365 days per year. If the hotel is completely full throughout the year, what is net income for one year? A) €1,280,000 B) €2,380,000 C) €3,180,000 D) €4,380,000 Answer: B Diff: 3 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 5) Beckham Company has the following information available: Selling price per unit Variable cost per unit Fixed costs per year Expected sales per year

€100 €55 €400,000 20,000 units

What is the expected operating income for a year? A) €480,000 B) €500,000 C) €680,000 D) €700,000 Answer: B Diff: 1 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 15 Copyright © 2023 Pearson Education, Ltd.

6) Suppose a Super 9 Hotel has annual fixed costs applicable to its rooms of €1.0 million for its 300-room hotel. Average daily room rents are €60 per room and average variable costs are €10 for each room rented. It operates 365 days per year. If the hotel is one-half full throughout the entire year, what is the amount of net income for one year? A) €1,737,500 B) €4,475,000 C) €5,475,000 D) €5,570,000 Answer: A Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 7) Step Company has total variable costs of 80% of total revenues and fixed costs of €20 million per year. What is the break-even point expressed in total revenue dollars? A) €10 million B) €12.5 million C) €20 million D) €100 million Answer: D Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 8) Cornwell Company, a producer of electronic components, has the following information: Income tax rate Selling price per unit Variable cost per unit Total fixed costs

30% €8.00 €3.00 €120,000.00

The break-even point in dollars is ________. A) €150,000 B) €180,000 C) €192,000 D) €320,000 Answer: C Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations

9) Christian Corporation sells desks at €480 per desk. The variable costs are €300 per desk. Total fixed costs for the period are €540,000. The break-even point in desks is ________. A) 1,125 B) 1,800 C) 3,000 D) 4,230 Answer: C Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 10) Abbott Company sells desks at €480 per desk. The variable costs are €372 per desk. Total fixed costs for the period are €456,840. The break-even volume in dollars is ________. A) €456,840 B) €589,471 C) €1,573,560 D) €2,030,400 Answer: D Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 11) Murphy Company produces dolls. Each doll sells for $20.00. Variable costs per unit are $14.00 and total fixed costs for the period are $435,000. What is the break-even point in units? A) 21,750 B) 31,071 C) 51,176 D) 72,500 Answer: D Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 12) Johnson Company produces dolls. Each doll sells for €20.00. Variable costs per unit are €14.00 and total fixed costs for the period are €300,000. What is the break-even volume in dollars? A) €50,000 B) €621,429 C) €1,000,000 D) €1,450,000 Answer: C Diff: 1 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations

13) Jensen Company produces dolls. Each doll sells for $20.00. Variable costs are $14.00 per unit. If the break-even volume in dollars is $1,446,000, then the total fixed costs for the period are ________. A) $361,500 B) $433,800 C) $516,425 D) $1,446,000 Answer: B Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 14) Assume the sales price is €34 per unit and the variable cost is €19 per unit. The break-even point is 12,000 units. What are total fixed costs? A) €180,000 B) €190,000 C) €340,000 D) €530,000 Answer: A Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 15) Assume the sales price is €100 per unit and the variable cost is €75 per unit. Total fixed costs are €150,000. Then the break-even volume in dollar sales is ________. A) €1,500 B) €150,000 C) €200,000 D) €600,000 Answer: D Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 16) Assume the sales price is $100 per unit and the total fixed costs are $75,000. The break-even volume in dollar sales is $250,000. What is the variable cost per unit? A) $30 B) $70 C) $100 D) $125 Answer: B Diff: 3 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations

17) Suppose Sunnyside Hotel has annual fixed costs applicable to its rooms of €1.0 million for its 300room hotel. Average daily room rents are €60 per room, and average variable costs are €10 for each room rented. It operates 365 days per year. What is the break-even point in number of rooms rented? A) 20,000 B) 30,000 C) 100,000 D) 120,000 Answer: A Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 18) Suppose Shady Lane Hotel has annual fixed costs applicable to its rooms of $1.0 million for its 300room hotel. Average daily room rents are $60 per room and average variable costs are $10 for each room rented. It operates 365 days per year. What percent of occupancy is needed to breakeven? A) 3.65% B) 18.3% C) 27.4% D) 34.3% Answer: B Diff: 3 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 19) Sharpie Company has variable costs of 75% of total revenues and fixed costs of €40 million per year. What is the break-even point in dollars? A) €40 million B) €53.33 million C) €100 million D) €160 million Answer: D Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations

20) The sales price is €30 per unit, the contribution margin is €8 per unit and total fixed costs are €32,000. What is the break-even point in units? A) 857 B) 1,200 C) 2,000 D) 4,000 Answer: D Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 21) If the total amount of fixed costs increases, what is the effect on the break-even point? (Assume no other changes.) A) The break-even point increases. B) The break-even point decreases. C) The break-even point remains the same. D) The break-even point is zero. Answer: A Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 22) If the variable cost per unit increases, what is the effect on the break-even point? (Assume no other changes.) A) The break-even point increases. B) The break-even point decreases. C) The break-even point remains the same. D) The break-even point is zero. Answer: A Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

23) If the selling price per unit increases, what is the effect on the break-even point? (Assume no other changes.) A) The break-even point increases. B) The break-even point decreases. C) The break-even point remains the same. D) The break-even point is zero. Answer: B Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 24) Which action will decrease a company's break-even point? A) reducing total fixed costs B) decreasing contribution margin per unit C) increasing variable cost per unit D) decreasing the selling price per unit Answer: A Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 25) Assume Mussa Company has the following information available: Selling price per unit Variable cost per unit Fixed costs per year Expected sales per year (units)

€100 €45 €420,000 20,000

If fixed costs increase by $200,000, what is the expected operating income? A) €280,000 B) €480,000 C) €680,000 D) €1,380,000 Answer: B Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

26) Assume Hull Company has the following information available: Selling price per unit Variable cost per unit Fixed costs per year Expected sales per year (units)

€100 €40 €400,000 20,000

If fixed costs increase by €200,000, what is the break-even point in units? A) 6,667 B) 10,000 C) 12,000 D) 13,000 Answer: B Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 27) The following information is available for Trump Corporation: Total fixed costs Variable costs per unit Selling price per unit

€300,000 €100 €200

If total fixed costs increased to €600,000, then the break-even volume in dollars would increase by ________. A) 10.0% B) 50.0% C) 100% D) 200% Answer: C Diff: 3 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

28) Assume Unicorn Company has the following information available: Selling price per unit Variable cost per unit Fixed costs per year Expected sales per year

€100 €45 €420,000 20,000 units

If variable costs increase to €65 per unit, what is the expected net income for one year? A) €280,000 B) €700,000 C) €880,000 D) €1,580,000 Answer: A Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 29) Assume fixed costs are constant and contribution margin per unit is reduced by 50 percent. What will happen to the break-even point in units? A) It will decrease 50 percent. B) It will increase 100 percent. C) It will be the same. D) It will increase 50 percent. Answer: B Diff: 3 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 30) If the contribution margin per unit increases, what is the effect on the break-even point? (Assume no other changes.) A) The break-even point increases. B) The break-even point decreases. C) The break-even point remains the same. D) The break-even point will be zero. Answer: B Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

31) Xerox Company has the following information available: Selling price per unit Variable cost per unit Fixed costs per year Expected sales per year (units)

€100 $45 €420,000 20,000

If variable costs increase to €65 per unit, what is the break-even point in units? A) 12,000 B) 13,000 C) 20,000 D) none of the above Answer: A Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 32) The break-even point may be reduced by reducing total fixed costs and holding everything else constant. Answer: TRUE Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 33) The break-even point may be reduced by increasing the per unit variable cost. Answer: FALSE Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 34) An increase in the sales price per unit will cause a decrease in the break-even point. Answer: TRUE Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits

35) The break-even point is when enough units are sold that total contribution margin equals total variable costs. Answer: FALSE Diff: 1 LO: 2-5 AACSB: Reflective thinking skills Learning Outcome: Perform fundamental CVP calculations 36) Wehr Corporation produces one product. Total fixed costs are €600,000. The unit selling price is €60.00 and the unit variable cost is €45.00. Required: A) Compute the contribution margin per unit. B) Compute the contribution-margin ratio. C) Compute the break-even point in units. D) Compute the break-even point in dollars. Answer: A) €60.00 - €45.00 = €15.00 B) €15.00/€60.00 = 0.25 C) €600,000/€15.00 = 40,000 units D) 40,000 × €60 = €2,400,000 Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations

37) Stefanko Manufacturing has prepared the following income statement: Sales Cost of goods sold Gross margin Operating expenses Operating income

€450,000 200,000 250,000 196,000 €54,000

According to company records, €100,000 of Cost of Goods Sold and €100,000 of Operating Expenses are fixed. Required: A) Compute the contribution margin. B) Compute the contribution margin ratio. C) Compute the break-even point in sales dollars. Answer: A) Fixed costs = €100,000 + €100,000 = €200,000 Variable costs = €100,000 + €96,000 = €196,000 Contribution Margin = €450,000 - €196,000 = €254,000 B) €254,000/€450,000 = 56.44% C) €200,000/0.5644 = €354,359 Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 38) Bruder Company produces one type of product. Total fixed costs are $100,000. Unit variable costs are $6.00. The break-even point is 25,000 units. Planned unit sales are 30,000. Required: A) Compute the selling price per unit. B) Compute the contribution-margin ratio. C) Compute the break-even point in dollars. Answer: A)

= 25,000

(X - 6)25,000 = 100,000 X = $10 B) ($10 - $6)/$10 = 0.40 C) 25,000 × $10 = $250,000 Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations

39) Franklin Company produces only one product. The selling price is €100 per unit and the variable cost is €60 per unit. Total fixed costs are €120,000. Required: A) Compute break-even point in units. B) Compute break-even point in dollars. Answer: A) €120,000/(€100 - €60) = 3,000 units B) 3,000 units × €100 = €300,000 Diff: 2 LO: 2-5 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 2.6 Questions 1) What is the margin of safety in dollars? A) planned net income minus actual net income B) planned revenue minus actual expenses C) actual revenue in dollars minus planned revenue in dollars D) planned sales in dollars minus break-even sales in dollars Answer: D Diff: 2 LO: 2-6 AACSB: Reflective thinking skills Learning Outcome: None 2) The county government released $100,000 as an appropriation for a counseling program for at-risk teenagers. The program should run one year and the variable costs for the program are $400 per teenager per year. Within the relevant range of 50 to 150 teenagers, the fixed costs for the program are $60,000. How many teenagers can the program serve? A) 50 B) 100 C) 150 D) 250 Answer: B Diff: 3 LO: 2-6 AACSB: Reflective thinking skills Learning Outcome: Perform fundamental CVP calculations

3) Assume the following information for Janice Company: Selling price per unit Variable costs per unit Total fixed costs

€100 €80 €80,000

If fixed costs increased by 10% and management wanted to maintain the original break-even point, then the selling price per unit would have to be increased to ________. A) €101.00 B) €102.40 C) €102.00 D) €103.00 Answer: C Diff: 3 LO: 2-6 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 4) What does the margin of safety in units measure? A) how far fixed costs can rise before an operating loss occurs B) how far variable costs can rise before an operating loss occurs C) how far total costs can rise before an operating loss occurs D) how far sales can fall before an operating loss occurs Answer: D Diff: 3 LO: 2-6 AACSB: Reflective thinking skills Learning Outcome: None 5) Falls Company has budgeted sales of $120,000 based on 80,000 units. The margin of safety is $1,000. What is the break-even point in dollars? A) $81,000 B) $119,000 C) $120,000 D) $121,000 Answer: B Diff: 3 LO: 2-6 AACSB: Reflective thinking skills Learning Outcome: None

6) Winston Company has variable costs of €5 per unit and a selling price of €10 per unit. Fixed costs are €100,000. Planned unit sales for 2023 are 25,000 units. Actual unit sales for 2022 were 22,000 units. What is the margin of safety in units for 2023? A) 2,000 units B) 3,000 units C) 5,000 units D) 7,000 units Answer: C Diff: 3 LO: 2-6 AACSB: Analytic skills Learning Outcome: None 7) Worbel Company has variable costs of $5 per unit and a selling price of $10 per unit. Fixed costs are $100,000. Planned unit sales for 2022 are 25,000 units. Actual unit sales for 2021 were 22,000. What is the margin of safety in dollars for 2022? A) $5,000 B) $20,000 C) $30,000 D) $50,000 Answer: D Diff: 3 LO: 2-6 AACSB: Analytic skills Learning Outcome: None 8) Wetzel Company has variable costs of €5 per unit and a selling price of €10 per unit. Fixed costs are €200,000. Planned unit sales for 2022 are 45,000 units. Actual unit sales for 2021 were 42,000. What is the margin of safety in units for 2022? A) 2,000 units B) 3,000 units C) 5,000 units D) 7,000 units Answer: C Diff: 3 LO: 2-6 AACSB: Analytic skills Learning Outcome: None

9) Operating leverage is the sensitivity of a firm's ________ to changes in ________. A) sales volume; the cost structure B) margin of safety; ratio of fixed costs to variable costs C) sales volume; the cost driver levels D) net income; sales volume Answer: D Diff: 2 LO: 2-6 AACSB: Reflective thinking skills Learning Outcome: None 10) The degree of operating leverage for a firm equals the ratio of ________ to ________. A) fixed costs; variable costs B) variable costs; fixed costs C) fixed costs: operating profit D) contribution margin; net income Answer: D Diff: 2 LO: 2-6 AACSB: Reflective thinking skills Learning Outcome: None 11) The degree of operating leverage for Geesling Company is 8.0 at 80,000 units of sales. At 80,000 units of sales, the net profit is €10,000. If the sales volume increases to 90,000 units, what is the net profit? A) €12,000 B) €20,000 C) €22,222 D) €80,000 Answer: B Diff: 3 LO: 2-6 AACSB: Analytic skills Learning Outcome: None 12) The degree of operating leverage for Murphy Company is 8.0 at 80,000 units of sales. At 80,000 units of sales, the net profit is $10,000. If the sales volume decreases to 72,000 units, what is the net profit? A) $2,000 B) $8,000 C) $10,000 D) $18,000 Answer: A Diff: 3 LO: 2-6 AACSB: Analytic skills Learning Outcome: None

13) Gokey Company has a contribution-margin ratio of 0.30. Targeted net income is €76,800 and targeted sales volume in dollars is €480,000. What are total fixed costs? A) €23,000 B) €44,160 C) €67,200 D) €144,000 Answer: C Diff: 3 LO: 2-6 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 14) Key Company has a targeted sales volume of 62,300 units. Total fixed costs are $31,200. The contribution margin per unit is $1.20. What is targeted net income? A) $31,200 B) $37,440 C) $43,560 D) $74,760 Answer: C Diff: 2 LO: 2-6 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 15) Goy Company has a break-even point of 88,000 units. The contribution margin per unit is €9.60. The desired target profit is €18,096. How many units must be sold to achieve the desired profit? A) 1,885 units B) 88,000 units C) 89,885 units D) 106,096 units Answer: C Diff: 2 LO: 2-6 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations

16) Assume the following facts: Sales price Variable cost Total fixed costs Targeted net income

€180 per unit €100 per unit €39,600 €52,800

How many units must be sold to achieve the targeted net income? A) 513 B) 629 C) 963 D) 1,155 Answer: D Diff: 2 LO: 2-6 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 17) Helium Company has the following information available: Selling price per unit Variable cost per unit Total fixed costs Targeted net income

€5.00 €3.50 €90,000.00 €30,000.00

How many units must be sold to achieve the targeted net income? A) 10,000 units B) 27,000 units C) 45,000 units D) 80,000 units Answer: D Diff: 2 LO: 2-6 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations

18) The following information is available for Kinsner Corporation: Total fixed costs Variable costs per unit Selling price per unit

€313,500 €99 €154

If management has a targeted net income of €46,200, then the number of units that must be sold is ________. A) 2,036 units B) 2,336 units C) 5,700 units D) 6,540 units Answer: D Diff: 2 LO: 2-6 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 19) The following information is available for Kismer Corporation: Total fixed costs Variable costs per unit Selling price per unit

$313,500 $90 $150

If management has a targeted net income of $59,400, then sales revenue should be ________. A) $239,721 B) $580,067 C) $671,220 D) $932,250 Answer: D Diff: 2 LO: 2-6 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 20) Berea Company expects to sell 19,000 units. Total fixed costs are €84,000 and the contribution margin per unit is €6.00. Berea's tax rate is 40%. What is the margin of safety in units? A) 3,000 units B) 5,000 units C) 7,500 units D) 14,000 units Answer: B Diff: 2 LO: 2-6 AACSB: Analytic skills Learning Outcome: None

21) Belgium Company has the following information available: Selling price per unit Variable cost per unit Fixed costs per year Expected sales per year (units)

€100 €45 €420,000 20,000

If variable costs increase to €65 per unit and fixed costs increase by €200,000, what is the break-even point in units? A) 11,273 B) 12,000 C) 20,000 D) 17,714 Answer: D Diff: 3 LO: 2-6 AACSB: Analytic skills Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 22) In companies with high operating leverage, small changes in sales volume result in large changes in net income. Answer: TRUE Diff: 2 LO: 2-6 AACSB: Reflective thinking skills Learning Outcome: None 23) Companies with high levels of operating leverage are less risky than companies with low levels of operating leverage. Answer: FALSE Diff: 2 LO: 2-6 AACSB: Reflective thinking skills Learning Outcome: None 24) A small margin of safety may indicate a risky situation. Answer: TRUE Diff: 2 LO: 2-6 AACSB: Reflective thinking skills Learning Outcome: None

25) The Eastman Family Restaurant is open 24 hours per day. Fixed costs are $24,000 per month. Variable costs are estimated at $9.60 per meal. The average revenue is $12 per meal. The restaurant wished to earn a profit before taxes of $6,000 per month. Required: A) Compute the number of meals that must be served to earn a profit before taxes of $6,000 per month. B) Assume that fixed costs increase to $30,000 per month. How many additional meals must be served to earn a profit before taxes of $6,000 per month? Answer: A) ($24,000 + $6,000)/($12.00 - $9.60) = 12,500 meals B) ($30,000 - $24,000)/($12.00 - $9.60) = 2,500 meals Diff: 3 LO: 2-6 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations 26) Sole Company manufactures running shoes. The selling price is $80 per pair (unit) and variable costs are $60 per pair (unit). The sales volume of $776,000 generates $100,750 of net income before taxes. Required: A) Compute total fixed costs. B) Compute total variable costs. C) Compute the break-even point in units. D) Compute the quantity of units above the break-even point to reach targeted net income before taxes. Answer: A) $776,000/$80= 9,700 units Variable costs= $60 × 9,700 = $582,000 Fixed costs= $776,000 - $582,000 - $100,750 = $93,250 B) 9,700 × $60 = $582,000 C) $93,250/ ($80 - $60) = 4,662.5 = 4,663 units D) 9,700 - 4,663 = 5,038 units Diff: 2 LO: 2-6 AACSB: Analytic skills Learning Outcome: Perform fundamental CVP calculations

2.7 Questions 1) Nealy Company has the following information available: Revenue Variable production costs Fixed production costs Variable selling costs Fixed selling costs

€500,000 €100,000 €100,000 €50,000 €50,000

What is the contribution margin? A) €300,000 B) €350,000 C) €400,000 D) €450,000 Answer: B Diff: 2 LO: 2-7 AACSB: Analytic skills Learning Outcome: None 2) Henricks Company has the following information available: Revenue Variable production costs Fixed production costs Variable selling costs Fixed selling costs

$500,000 $100,000 $100,000 $50,000 $50,000

What is the gross margin and net income? A) $200,000; $200,000 B) $250,000; $150,000 C) $300,000; $200,000 D) $400,000: $200,000 Answer: C Diff: 2 LO: 2-7 AACSB: Analytic skills Learning Outcome: None

3) ________ is the excess of sales over the cost of goods sold. A) Gross margin B) Contribution-margin ratio C) Variable-cost ratio D) Contribution margin Answer: A Diff: 1 LO: 2-7 AACSB: Reflective thinking skills Learning Outcome: None 4) Contribution margin is equal to ________. A) sales minus variable costs B) sales minus fixed costs C) sales minus variable production costs D) sales minus production costs Answer: A Diff: 1 LO: 2-7 AACSB: Reflective thinking skills Learning Outcome: None 5) The following information is available for a company: Sales Variable Selling Expenses Fixed Selling Expenses Variable Administrative Expenses Fixed Administrative Expenses Variable Cost of Goods Sold Fixed Cost of Goods Sold

€1,000,000 23,000 33,000 39,000 10,000 300,000 100,000

What is the contribution margin for this company? A) €500,000 B) €600,000 C) €638,000 D) €700,000 Answer: C Diff: 2 LO: 2-7 AACSB: Analytic skills Learning Outcome: None

6) The following information for Zippy Company is: Sales Variable Selling Expenses Fixed Selling Expenses Variable Administrative Expenses Fixed Administrative Expenses Variable Cost of Goods Sold Fixed Cost of Goods Sold

€1,000,000 23,000 33,000 39,000 10,000 300,000 100,000

What is the gross margin for this company? A) €500,000 B) €548,000 C) €578,000 D) €600,000 Answer: D Diff: 2 LO: 2-7 AACSB: Analytic skills Learning Outcome: None 7) The following information is available for Company ZZ: Sales Variable Selling Expenses Fixed Selling Expenses Variable Administrative Expenses Fixed Administrative Expenses Variable Cost of Goods Sold Fixed Cost of Goods Sold

$1,000,000 22,000 33,000 30,000 10,000 400,000 100,000

If sales increase to $1,500,000, what is operating income? A) $405,000 B) $500,000 C) $548,000 D) $679,000 Answer: D Diff: 3 LO: 2-7 AACSB: Analytic skills Learning Outcome: None 8) Gross margin is the same as contribution margin for most companies. Answer: FALSE Diff: 2 LO: 2-7 AACSB: Reflective thinking skills Learning Outcome: None 38 Copyright © 2023 Pearson Education, Ltd.

9) Gross margin focuses on sales in relation to variable costs. Answer: FALSE Diff: 1 LO: 2-7 AACSB: Reflective thinking skills Learning Outcome: None 10) Cost of goods sold is the cost of the merchandise that a company acquires or produces and then sells. Answer: TRUE Diff: 1 LO: 2-7 AACSB: Reflective thinking skills Learning Outcome: None 11) Selling expenses are found in the cost of goods sold. Answer: FALSE Diff: 1 LO: 2-7 AACSB: Reflective thinking skills Learning Outcome: None 2.8 Questions 1) Which statement is FALSE? A) Each different sales-mix of products has a different break-even point. B) Changes in the sales-mix of products sold affects a company's net operating profit. C) Changes in the sales-mix of products sold affects a company's contribution margin. D) If the sales-mix of products sold changes, the break-even point does not change. Answer: D Diff: 2 LO: 2-8 AACSB: Reflective thinking skills Learning Outcome: None 2) ________ is the relative proportions or combinations of quantities of different products that comprise total sales. A) Sales mix B) Constant mix C) Fluctuating mix D) Variable cost ratio Answer: A Diff: 1 LO: 2-8 AACSB: Reflective thinking skills Learning Outcome: None

3) Assume the following facts for two products, Zip and Zap:

Sales mix Selling price per unit Variable costs per unit

Zip 3 units €21.00 €14.00

Zap 1 unit €28.00 €16.00

If total fixed costs are €132,000, the break-even point in units would be ________. A) 4,000 units of Zip and 12,000 units of Zap B) 1,200 units of Zip and 400 units of Zap C) 12,000 units of Zip and 4,000 units of Zap D) 8,400 units of Zip and 2,800 units of Zap Answer: C Diff: 3 LO: 2-8 AACSB: Analytic skills Learning Outcome: None 4) Assume the following information for two products, France Fantasy and France Joy.

Sales mix Selling price per unit Variable cost per unit

France Fantasy 2 units €15 €10

France Joy 1 unit €100 €40

Fixed expenses total €490,000 per year. What is the breakeven point in units for each product? A) 4,575 units of France Fantasy and 18,300 units of France Joy B) 7,000 units of France Fantasy and 14,000 units of France Joy C) 18,300 units of France Fantasy and 4,575 units of France Joy D) 14,000 units of France Fantasy and 7,000 units of France Joy Answer: D Diff: 3 LO: 2-8 AACSB: Analytic skills Learning Outcome: None 5) If the proportions of different products sold in a sales mix change, the ________. A) contribution margin per unit for each product increases B) break-even point will change C) contribution margin per unit for each product decreases D) net income will not change Answer: B Diff: 2 LO: 2-8 AACSB: Reflective thinking skills Learning Outcome: None

6) Nearly all companies sell more than one product, and thus, they must be concerned with sales mix. Answer: TRUE Diff: 1 LO: 2-8 AACSB: Reflective thinking skills Learning Outcome: None 7) The contribution margin per unit of a given product guides managers when deciding which product to emphasize in a sales mix. Answer: TRUE Diff: 2 LO: 2-8 AACSB: Reflective thinking skills Learning Outcome: None

8) Makers Company produces two products. The following information is available:

Selling price per unit Variable cost per unit

Product X €46 €38

Product Y €36 €24

Total fixed costs are €234,000. Lakers plans to sell 21,000 units of Product X and 7,000 units of Product Y. Required: A) Compute the contribution margin for each product. B) What is the expected net income? C) Assume the sales mix is 3 units of Product X for every 1 unit of Product Y. What is the break-even point in units for each product? D) Assume the sales mix is 3 units of Product X for every 2 units of Product Y. What is the break-even point in units for each product? Answer: A) Product X: Contribution margin = €46 - €38 = €8 Product Y: Contribution margin = €36 - €24 = €12 B) Contribution margin (€8 × 21,000) + (€12 × 7,000) = €252,000 Net income = €252,000 - €234,000 = €18,000 C) (€8 × 3)Z + (€12 × 1)Z - €234,000 = 0 €24Z + €12Z = €234,000 Z = 6,500 units Product X: 6,500 × 3 = 19,500 units Product Y: 6,500 units D) (€8 × 3)Z + (€12 × 2)Z - €234,000 = 0 €24Z + €24Z = €234,000 Z = 4,875 units Product X: 4,875 × 3 = 14,625 units Product Y: 4,875 × 2 = 9,750 units Diff: 3 LO: 2-8 AACSB: Analytic skills Learning Outcome: None

2.9 Questions 1) Seidner Company has the following information available: Total fixed costs Targeted after-tax net income Contribution margin per unit Tax rate

€80,000 €18,000 €2.00 40%

How many units must be sold to achieve the targeted after-tax net income? A) 45,400 B) 49,000 C) 55,000 D) 62,500 Answer: C Diff: 3 LO: 2-9 AACSB: Analytic skills Learning Outcome: None 2) The Todd Dolhun Company has the following information available: Targeted after-tax net income Total fixed costs Contribution margin per unit Tax rate

$120,000 $300,000 $2 40%

How many units should be sold to achieve the targeted after-tax net income? A) 180,000 B) 210,000 C) 250,000 D) 300,000 Answer: C Diff: 3 LO: 2-9 AACSB: Analytic skills Learning Outcome: None

3) The Troy Company has the following information available: Total fixed costs Expected sales (units) Contribution margin per unit Tax rate

€400,000 100,000 €7.50 30%

What is the after-tax net income? A) €245,000 B) €280,000 C) €350,000 D) €400,000 Answer: A Diff: 3 LO: 2-9 AACSB: Analytic skills Learning Outcome: None 4) Assume the following information for Rodney Company: Selling price per unit Variable cost per unit Total fixed costs After-tax net income Tax rate

$100 $80 $80,000 $24,000 40%

To achieve the targeted after-tax net income, what amount of sales in dollars is necessary? A) $400,000 B) $520,000 C) $600,000 D) $660,000 Answer: C Diff: 3 LO: 2-9 AACSB: Analytic skills Learning Outcome: None

5) Assume the following information for Richard Company: Selling price per unit Variable cost per unit Total fixed costs After-tax net income Tax rate

€100 €80 €80,000 €40,800 40%

How many units must be sold to achieve the after-tax net income? A) 6,040 B) 7,400 C) 7,770 D) 7,800 Answer: B Diff: 3 LO: 2-9 AACSB: Analytic skills Learning Outcome: None 6) Benjamin Company has the following information available: Income tax rate Selling price per unit Variable cost per unit Total fixed costs

30% €5.00 €3.00 €90,000.00

If Benjamin Company wants a targeted after-tax net income of €14,000, how many units must be sold? A) 45,000 B) 52,000 C) 55,000 D) 60,000 Answer: C Diff: 3 LO: 2-9 AACSB: Analytic skills Learning Outcome: None

7) John Company has the following information: Income tax rate Selling price per unit Variable cost per unit Total fixed costs Target after-tax net income

40% $7.50 $2.50 $100,000 $42,000

Assume the tax rate decreases to 30%. How many fewer units can be sold to retain the same after-tax net income of $42,000? A) 1,000 B) 2,000 C) 32,000 D) 34,000 Answer: B Diff: 3 LO: 2-9 AACSB: Analytic skills Learning Outcome: None 8) Atkinson Company wishes to earn after-tax net income of €18,000. Total fixed costs are €84,000 and the contribution margin is €6.00 per unit. Atkinson's tax rate is 40%. The number of units that must be sold to earn the targeted net income is ________. A) 14,000 B) 17,000 C) 19,000 D) 21,500 Answer: C Diff: 3 LO: 2-9 AACSB: Analytic skills Learning Outcome: None 9) A change in the tax rate will not affect the break-even point. Answer: TRUE Diff: 2 LO: 2-9 AACSB: Analytic skills Learning Outcome: None

10) The Wolter Company has provided the following information: Income tax rate Selling price per unit Variable cost per unit Total fixed costs

50% €6.60 €5.00 €46,000.00

Required: A) Compute the break-even point in units. B) Compute the sales volume in units necessary to generate an after-tax net income of €10,000. C) Compute the sales volume in units necessary to generate an after-tax net income of €20,000. Answer: A) €46,000 / (€6.60 - €5.00) = 28,750 units B) €10,000/ 0.50 = €20,000 (€20,000 + €46,000) / (€1.60) = 41,250 units C) €20,000/ 0.50 = €40,000 (€40,000 + €46,000)/($1.60) = 53,750 units Diff: 3 LO: 2-9 AACSB: Analytic skills Learning Outcome: None 11) Lorna Corporation has determined the contribution margin ratio is 35% and the income tax rate is 40%. Required: A) Assume break-even volume in dollars is $1,500,000. What are total fixed costs? B) Assume Lorna Corporation wants after-tax net income of $300,000. What volume of sales in dollars is necessary to achieve this net income? Answer: A) $1,500,000 × 0.35 = $525,000 B) $300,000/ 0.6= $500,000 ($500,000 + $525,000)/0.35 = $2,928,571.4 Diff: 3 LO: 2-9 AACSB: Analytic skills Learning Outcome: None

Introduction to Management Accounting, 17e, GE (Horngren) Chapter 3 Measurement of Cost Behavior 3.1 Questions 1) Managers can influence the amount of fixed and variable costs in a firm through decisions about ________. A) product attributes B) capacity level C) amount of high technology equipment used for manufacturing products D) all of the above Answer: D Diff: 1 LO: 3-1 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 2) The use of high technology equipment to manufacture products instead of highly skilled labor usually results in ________. A) higher discretionary fixed costs B) higher discretionary variable costs C) lower risk D) higher operating leverage Answer: D Diff: 2 LO: 3-1 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 3) Which of the following costs can be canceled in the short run? A) salary of CEO of company B) mortgage payment on factory building C) lease payments on two-year lease for leased equipment in factory D) management consulting services engaged to change company logo Answer: D Diff: 2 LO: 3-1 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs

4) A hospital adds a new addition and needs to acquire some new equipment for the addition. The cost driver for the equipment is patient-days per month. The new addition increases the patient-days per month outside the relevant range. What type of equipment costs will change as a result of the addition? A) discretionary fixed costs B) discretionary variable costs C) committed fixed costs D) committed variable costs Answer: C Diff: 2 LO: 3-1 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 5) Managers can eliminate ________ costs entirely for a given year in dire times such as a major recession. However, managers cannot eliminate ________ costs. A) discretionary variable costs; committed variable costs B) discretionary fixed costs; committed fixed costs C) discretionary variable costs; committed fixed costs D) committed fixed costs; committed variable costs Answer: B Diff: 2 LO: 3-1 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 6) If a company eliminates all discretionary costs due to a severe recession, this could ________. A) ensure that the company reports a net loss B) ensure that the company reports a net profit C) reestablish a company's competitive position in an industry D) impair a company's competitive position in an industry Answer: D Diff: 2 LO: 3-1 AACSB: Reflective thinking skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs 7) Many organizations use a linear relationship with a single cost driver to describe a cost even though the cost may have multiple cost drivers. Why? A) This approach is easier and less expensive. B) The cost of developing a more complex function is greater than the benefit. C) Cost estimates from the simple function are accurate enough for most decisions. D) All of the above Answer: D Diff: 2 LO: 3-1 AACSB: Analytic skills Learning Outcome: Define and distinguish between variable, fixed and mixed costs

12) Assume sales are the cost driver for product costs. The difference between the static budget amount for sales and the flexible budget amount for sales at the actual level of sales is called the ________. The difference between the flexible budget amount for sales at the actual level of sales and the actual amount for sales is called the ________. A) static variance; flexible budget variance B) master variance; flexible budget variance C) quantity variance; static budget variance D) sales activity variance; flexible budget variance Answer: D Diff: 2 LO: 8-4 AACSB: Reflective thinking skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 13) Differences between actual results and the static budget at the original planned level of output are ________ variances. A) flexible budget B) financial budget C) operating budget D) static budget Answer: D Diff: 2 LO: 8-4 AACSB: Reflective thinking skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 14) Flexible budget variances are the deviations of actual results from the ________. A) flexible budget amounts for the achieved level of activity B) flexible budget amounts for the static level of activity C) static budget amounts for the expected level of activity D) static budget amounts for last year's level of activity Answer: A Diff: 2 LO: 8-4 AACSB: Reflective thinking skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 15) The amount of actual operating income may differ from the static budget amount for operating income because ________. A) actual output levels were not the same as in the static budget B) actual variable costs were higher than expected variable costs C) actual fixed costs were higher than expected fixed costs D) all of the above Answer: D Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 15 Copyright © 2023 Pearson Education, Ltd.

16) Which is NOT a reason for a static budget variance? A) Actual sales volume was higher than projected sales volume. B) Actual variable costs were higher than static budget variable costs. C) Actual fixed costs were higher than static budget fixed costs. D) Actual sales volume in current period was higher than projected sales volume in last period. Answer: D Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 17) If sales are the cost driver, unfavorable flexible budget variances result from ________. A) actual costs exceeding planned costs B) planned costs exceeding actual costs C) actual sales exceeding planned sales D) planned sales exceeding actual sales Answer: A Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 18) Flexible budget variances are the difference between the actual results and ________. A) the static budget for the planned level of output B) the flexible budget for the planned level of output C) the flexible budget for the actual level of output D) the master budget for the planned level of output Answer: C Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

19) The following data are for Parekh Corporation:

Units Sales Variable costs Contribution margin Fixed costs Operating income

Actual 18,000 ₹360,000 234,000 ₹126,000 76,000 ₹50,000

Static Budget 16,000 ₹320,000 192,000 ₹128,000 80,000 ₹48,000

Flexible Budget for Actual Sales Activity 18,000 ₹360,000 216,000 ₹144,000 80,000 ₹64,000

The flexible budget variance for operating income is ________. A) ₹2,000 Favorable B) ₹2,000 Unfavorable C) ₹14,000 Favorable D) ₹14,000 Unfavorable Answer: D Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 20) The following data are for California Closets:

Units Sales Variable costs Contribution margin Fixed costs Operating income

Actual 18,000 $360,000 234,000 $126,000 76,000 $50,000

Static Budget 16,000 $320,000 192,000 $128,000 80,000 $48,000

Flexible Budget for Actual Sales Activity 18,000 $360,000 216,000 $144,000 80,000 $64,000

The sales activity variance for operating income is ________. A) $14,000 Favorable B) $14,000 Unfavorable C) $16,000 Favorable D) $16,000 Unfavorable Answer: C Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

21) The following data are for Beach Corporation:

Units Sales Variable costs Contribution margin Fixed costs Operating income

Actual 18,000 €360,000 234,000 €126,000 76,000 €50,000

Static Budget 16,000 €320,000 192,000 €128,000 80,000 €48,000

Flexible Budget for Actual Sales Activity 18,000 €360,000 216,000 €144,000 80,000 €64,000

The static budget variance for operating income is ________. A) €2,000 Favorable B) €2,000 Unfavorable C) €16,000 Favorable D) €16,000 Unfavorable Answer: A Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 22) If the flexible budget variance was $6,000 Favorable and the sales activity variance was $3,000 Favorable, then the static budget variance was ________. A) $3,000 Favorable B) $3,000 Unfavorable C) $9,000 Favorable D) $9,000 Unfavorable Answer: C Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 23) Who is usually responsible for sales activity variances for income? A) operating managers in factory B) marketing managers C) research and development function D) product design function Answer: B Diff: 2 LO: 8-4 AACSB: Reflective thinking skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

24) If the sales activity variance was $8,000 Favorable and the static budget variance was $10,000 Favorable, then the flexible budget variance was ________. A) $2,000 Favorable B) $2,000 Unfavorable C) $18,000 Favorable D) $18,000 Unfavorable Answer: A Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 25) The sales activity variance for ________ will always be zero. A) sales B) contribution margin C) variable costs D) fixed costs Answer: D Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 26) Brad Company planned to produce 12,000 units. This level of production required 20 setups at a cost of $18,000 plus $500 per setup. Actual production was 10,000 units, requiring 15 setups. Actual setup cost was $26,000. What is the static budget variance for setup costs? A) $2,000 Favorable B) $2,000 Unfavorable C) $2,500 Favorable D) $2,500 Unfavorable Answer: A Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 27) Leshan Company planned to produce 12,000 units. This level of production required 20 setups at a cost of $18,000 plus $500 per setup. Actual production was 10,000 units, requiring 15 setups. Actual setup cost was $26,000. What is the flexible budget variance for setup costs? A) $500 Favorable B) $500 Unfavorable C) $2,000 Favorable D) $2,000 Unfavorable Answer: B Diff: 3 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 19 Copyright © 2023 Pearson Education, Ltd.

28) Which statement would NOT be a reason for a flexible budget variance? A) Material prices were different than expected. B) Labor prices were different than expected. C) Actual volume of activity was different than expected. D) Amount of labor used per unit of output was different than expected. Answer: C Diff: 3 LO: 8-4 AACSB: Analytic skills Learning Outcome: Discuss standard costing and variance analysis 29) Total static budget variances are equal to the sum of activity-level variances and flexible budget variances. Answer: TRUE Diff: 3 LO: 8-4 AACSB: Reflective thinking skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 30) The static budget variance is the difference between actual results and the static budget for the original planned level of output. Answer: TRUE Diff: 2 LO: 8-4 AACSB: Reflective thinking skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 31) If the total sales-activity variance and the static-budget variance are equal, there is no flexible budget variance. Answer: TRUE Diff: 2 LO: 8-4 AACSB: Reflective thinking skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

32) The following data are for the month of January for the Soloway Company. Assume the cost driver is the number of units sold. Static budget data: Sales of 9,000 pairs at €90 per pair Variable costs of €69 per pair Total fixed costs €108,000 Actual results: Sales of 9,600 pairs at €87 per pair Variable costs of €72 per pair Total fixed costs €109,200 Required: A) What is the static budget operating income? B) What is the sales activity variance for operating income? C) What is the flexible budget variance for operating income? Answer: Actual Flexible Budget Sales €835,200 €864,000 Variable costs 691,200 662,400 Fixed costs 109,200 108,000 Operating income €34,800 €93,600

Static Budget €810,000 621,000 108,000 €81,000

A) €81,000 B) €12,600 Favorable C) €58,800 Unfavorable Diff: 2 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

33) Sunday Corporation prepared the following performance report for variable overhead costs for the last quarter of the year. Machine hours are the cost driver for all overhead costs.

Cost Driver(Machine Hours) Variable Overhead Costs: Utilities Indirect Labor Supplies Maintenance Total Variable Overhead Costs

Static Budget 35,000

Actual 38,000 £15,700 86,500 26,000 44,900 £173,100

Variances £14,000 £1,700 U 80,500 6,000 U 21,000 5,000 U 42,000 2,900 U £157,500 £15,600 U

The cost formulas used for the variable overhead costs are: Variable Overhead Costs Utilities Indirect Labor Supplies Maintenance

Cost Formula £0.40 per machine hour £2.30 per machine hour £0.60 per machine hour £1.20 per machine hour

Your boss called you into the office and reprimanded you for the unfavorable variances. The boss says you are fired unless you can explain why the variances are all unfavorable. Required: Calculate the flexible budget variances and the activity-level variances for each cost. Answer:

Utilities Indirect Labor Supplies Maintenance Total

Flexible Budget Actual Variances £15,700 £500 U 86,500 900 F 26,000 3,200 U 44,900 700 F £173,100 £2,100 U

Activity Flexible Level Budget Variances £15,200 £1,200 U 87,400 6,900 U 22,800 1,800 U 45,600 3,600 U £171,000 £13,500 U

Static Budget £14,000 80,500 21,000 42,000 £157,500

Diff: 3 LO: 8-4 AACSB: Analytic skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets

34) Differentiate between a static budget variance and a flexible budget variance. Answer: A static budget variance is the difference between the originally planned (static) amount and the actual amount. In the case of sales, the static budget variance for sales is the difference between sales at the planned level of operations and sales at the actual level of operations. A flexible budget variance is the difference between the actual amount and the amount that is expected for the actual level of output achieved. In the case of sales, the flexible budget variance is the difference between sales at the actual level of operations and expected sales at the actual level of operations. Diff: 3 LO: 8-4 AACSB: Reflective thinking skills Learning Outcome: Prepare a flexible budget and discuss the interpretation and use of flexible budgets 8.5 Questions 1) One variance often influences another variance. If the direct materials price variance is favorable, then it is possible that this variance will cause ________. A) the direct materials quantity variance to be unfavorable B) the direct labor price variance to be unfavorable C) the direct labor price variance to be favorable D) the direct materials quantity variance to be favorable Answer: A Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 2) Which of the following is NOT an example of efficient performance? A) Direct labor hours used per unit were less than expected. B) Direct material used per unit was less than expected. C) More outputs were achieved with less inputs than predicted. D) More outputs were produced than expected. Answer: D Diff: 2 LO: 8-5 AACSB: Analytic skills Learning Outcome: Discuss standard costing and variance analysis 3) Purple Rain Company planned to sell 35,000 units. Actual sales were 30,000 units. Based on this information, Blue Company was ________. A) efficient B) inefficient C) effective D) ineffective Answer: D Diff: 1 LO: 8-5 AACSB: Analytic skills Learning Outcome: Discuss standard costing and variance analysis 23 Copyright © 2023 Pearson Education, Ltd.

4) Yellow Cake Company planned to produce and sell 900 units at a total cost of $180,000. Actual production and sales were 900 units at a cost of $170,000. The company was ________. A) efficient and ineffective B) inefficient and ineffective C) inefficient and effective D) efficient and effective Answer: D Diff: 1 LO: 8-5 AACSB: Analytic skills Learning Outcome: Discuss standard costing and variance analysis 5) ________ is the degree to which an organization minimizes the ________ used to achieve an objective. A) Efficiency; costs B) Efficiency; resources C) Effectiveness; resources D) Effectiveness; costs Answer: B Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 6) When a firm meets a sales goal, it is said to be ________. When a firm incurs more direct material costs to manufacture products than expected, the firm is said to be ________. A) effective; ineffective B) efficient; inefficient C) effective; inefficient D) efficient; ineffective Answer: C Diff: 2 LO: 8-5 AACSB: Analytic skills Learning Outcome: Discuss standard costing and variance analysis 7) A favorable materials price variance can affect all of the following variances except ________. A) labor rate variance B) labor efficiency variance C) materials quantity variance D) flexible budget variance for direct materials Answer: A Diff: 2 LO: 8-5 AACSB: Analytic skills Learning Outcome: Discuss standard costing and variance analysis

8) Which of the following statements about perfection standards is TRUE? A) It is generally believed that they have a negative influence on employee morale. B) They are expressions of the most efficient performance possible. C) They usually result in unfavorable variances. D) All of the above Answer: D Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 9) Variances should be investigated if they ________. A) are favorable B) are unfavorable C) are smaller than the variances in the prior period D) exceed certain dollar amounts or percentage deviations from the budget Answer: D Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 10) Favorable variances do not require investigation. Answer: FALSE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 11) Favorable flexible budget variances are always good news. Answer: FALSE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 12) Sales-activity variances measure how efficient managers have been in meeting the planned sales goal. Answer: FALSE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis

13) Perfection standards and ideal standards are different. Answer: FALSE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 14) Ideal standards make no provision for waste, spoilage and machine breakdowns. Answer: TRUE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 15) Ideal standards have an adverse effect on employee motivation. Answer: TRUE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 16) As the terms are used in the budgeting process, it is possible for a company to be efficient at the same time it is ineffective. Answer: TRUE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 17) Efficiency is the degree to which a goal or objective is met. Answer: FALSE Diff: 1 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 18) Currently attainable standards do not make allowances for spoilage and waste. Answer: FALSE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis

19) Currently attainable standards are levels of performance that can be achieved by realistic levels of effort. Answer: TRUE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 20) The unfavorable variances resulting from ideal standards are intended to constantly remind personnel of the continuous need for improvement. Answer: TRUE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 21) One of the first questions a manager should consider when explaining a large variance is whether expectations are valid. Answer: TRUE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis 22) In most companies, variances are investigated only if they exceed a minimum dollar amount or percentage deviation from budgeted amounts. Answer: TRUE Diff: 2 LO: 8-5 AACSB: Reflective thinking skills Learning Outcome: Discuss standard costing and variance analysis

8.6 Questions 1) The following information is available for Munter Manufacturing Company. -- Direct materials price standard is $3.25 per pound. -- Direct materials quantity standard is six pounds per finished unit. -- Budgeted production is 25,000 finished units. -- 175,000 pounds of direct materials were purchased for $525,000. -- 175,000 pounds of direct materials were used in production. -- 25,600 finished units of product were produced. What is the direct materials price variance? A) $43,750 Unfavorable B) $43,750 Favorable C) $350,000 Unfavorable D) $350,000 Favorable Answer: B Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 2) The following information is available for Maher Manufacturing Company. -- Direct materials price standard is $3.25 per pound. -- Direct materials quantity standard is six pounds per finished unit. -- Budgeted production is 25,000 finished units. -- 175,000 pounds of direct materials were purchased for $525,000. -- 175,000 pounds of direct materials were used in production. -- 25,600 finished units of product were produced. What is the direct materials quantity variance? A) $21,400 Unfavorable B) $21,400 Favorable C) $69,550 Unfavorable D) $69,550 Favorable Answer: C Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

3) The following information is presented for the Marathon Manufacturing Company. — Direct labor rate standard is $11.55. — Direct labor efficiency standard is 2.5 hours per unit. — Budgeted production is 1,200 units. — Production required 2,910 direct labor hours at a cost of $33,174. — Actual production is 1,150 units. What is the direct labor price variance? A) $172.50 Favorable B) $180.00 Unfavorable C) $436.50 Favorable D) $435.50 Unfavorable Answer: C Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 4) The direct materials price variance reflects the effects of ________. A) changing input prices, holding the quality of outputs constant B) changing input quantities, holding the input price constant C) changing input prices, holding the quantity of inputs constant D) changing input quantities, while changing the input price Answer: C Diff: 2 LO: 8-6 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 5) The following information is presented for the Maybeel Manufacturing Company. — Direct labor rate standard is $11.55. — Direct labor efficiency standard is 2.5 hours per unit. — Budgeted production is 1,200 units. — Production required 2,910 direct labor hours at a cost of $33,174. — Actual production is 1,150 units. What is the direct labor efficiency variance? A) $404.25 Favorable B) $404.25 Unfavorable C) $1,039.50 Favorable D) $1,039.50 Unfavorable Answer: B Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

6) Johnsen Company reported a flexible budget variance for direct labor of $8,000 Favorable for the current year. If the direct labor price variance was $2,000 Unfavorable, what was the direct labor efficiency variance? A) $6,000 Unfavorable B) $6,000 Favorable C) $10,000 Favorable D) $10,000 Unfavorable Answer: C Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 7) Christian Company reported a flexible budget variance for direct materials costs of £10,000 Favorable for the current year. If the direct materials price variance was £2,000 Favorable, what was the direct materials quantity variance? A) £8,000 Unfavorable B) £8,000 Favorable C) £12,000 Favorable D) £12,000 Unfavorable Answer: B Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 8) A company has the following information available about one of its products: Standard price per pound of input Actual price per pound of input Standard inputs per unit of output Actual units of output Direct Materials Quantity Variance

$25 $24 3 pounds 2,770 $250 F

How many pounds of material were used? A) $8,300 B) $8,310 C) $8,320 D) $8,330 Answer: A Diff: 3 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

9) A company has the following information available about one of its products: Standard price per pound of input Actual price per pound of input Standard inputs per unit of output Actual units of output Direct Materials Price Variance Actual pounds of input used

¥27 3 pounds 3,000 ¥18,000 F 9,000

What is the standard price per pound of input? A) ¥25 B) ¥27 C) ¥29 D) ¥33 Answer: C Diff: 3 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 10) Beckowski Company had the following information available for its specialty product: Standards for one unit of product: Direct Materials: 5 pounds at ₽2 per pound Direct Labor: 0.50 hour at ₽16 per hour Materials and Labor Used to produce 8,500 units: Direct Materials: 46,000 pounds at ? per pound Direct Labor: 4,000 hours at $16.80 per hour If the Direct Materials Price Variance is ₽4,600 Unfavorable, what is the actual cost per pound of direct materials used? A) ₽1.80 B) ₽1.90 C) ₽2.00 D) ₽2.10 Answer: D Diff: 3 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

11) Parrish Company had the following information available for its specialty product: Standards for one unit of product: Direct Materials: 5 pounds at €2 per pound Direct Labor: 0.50 hour at €16 per hour Materials and Labor Used to produce 8,500 units: Direct Materials: ? pounds at €2.10 per pound Direct Labor: 4,000 hours at €16.80 per hour If the Direct Materials Quantity Variance is €7,000 Unfavorable, what is the actual quantity of direct materials used? A) 7,000 B) 42,500 C) 46,000 D) 47,000 Answer: C Diff: 3 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 12) Cornell Company had the following information available for its specialty product: Standards for one unit of product: Direct Materials: 5 pounds at $2 per pound Direct Labor: 0.50 hour at $16 per hour Materials and Labor Used to produce 8,500 units: Direct Materials: 46,000 pounds at $3 per pound Direct Labor: 4,000 hours at ? per hour If the Direct Labor Price Variance is $4,600 Unfavorable, what is the actual labor rate per hour? A) $16.00 B) $16.50 C) $17.10 D) $17.15 Answer: D Diff: 3 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

13) Gollerowski Company had the following information available for its specialty product: Standards for one unit of product: Direct Materials: 5 pounds at $2 per pound Direct Labor: 0.50 hour at $16 per hour Materials and Labor Used to produce 8,500 units: Direct Materials: 46,000 pounds at 4 per pound Direct Labor: ? hours at $17 per hour If the Direct Labor Efficiency Variance is $4,000 Unfavorable, what are the actual number of hours worked? A) $4,000 B) $4,250 C) $4,400 D) $4,500 Answer: D Diff: 3 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 14) The quantity variance for direct materials can be computed by multiplying the standard price by the difference between the ________. A) standard inputs allowed and expected inputs allowed at actual output B) quantity of inputs actually used and the quantity of inputs that should have been used for the expected output C) standard inputs allowed and expected inputs allowed for expected output D) quantity of inputs actually used and the quantity of inputs that should have been used for actual output Answer: D Diff: 2 LO: 8-6 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 15) Rate variances are the same as ________ variances. Efficiency variances are the same as ________ variances. A) spending; effective B) activity; static C) usage; quantity D) price; quantity Answer: D Diff: 1 LO: 8-6 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

16) A ________ is most likely to be held accountable for price variances for direct materials. A) machine operator B) production supervisor C) purchasing manager D) marketing director Answer: C Diff: 1 LO: 8-6 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 17) In which of the following scenarios can Eastman Company NOT have favorable flexible budget variance for direct materials?: When direct material price variance is ________, and when direct material quantity variance is ________, A) favorable; unfavorable B) unfavorable; favorable C) unfavorable; unfavorable D) favorable; favorable Answer: C Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 18) If the direct labor price variance is $800 Favorable and the direct labor usage variance is $700 Unfavorable, then ________. A) the flexible budget variance for direct labor is $100 Favorable B) actual total wages paid were $800 more than expected C) actual labor hours were less than expected D) actual material prices were less than expected Answer: A Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

19) The following information is for Brankov Corporation: Direct Materials (measured in pounds) Standard price per unit of input Actual price per unit of input Standard inputs per unit of output Actual units of input Actual units of output

$20 $18 3 pounds 8,300 pounds 2,770 units

What is the flexible budget variance for direct materials? A) $16,400 Favorable B) $16,400 Unfavorable C) $16,800 Favorable D) $16,800 Unfavorable Answer: C Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 20) Barber Company produces 2,500 units. Each unit was expected to require 2 labor hours at a cost of $10 per hour. Total labor cost was $52,250 for 4,750 hours worked. Direct labor is measured in labor hours. What is the direct labor price variance? A) $2,500 Favorable B) $2,500 Unfavorable C) $4,750 Favorable D) $4,750 Unfavorable Answer: D Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 21) Butters Company produces 2,500 units. Each unit was expected to require 2 labor hours at a cost of $10 per hour. Total labor cost was $52,250 for 4,750 hours worked. Direct labor is measured in labor hours. What is the direct labor quantity variance? A) $2,500 Favorable B) $2,500 Unfavorable C) $2,750 Favorable D) $2,750 Unfavorable Answer: A Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

22) Ivanovich Company produces 2,500 units. Each unit was expected to require 2 labor hours at a cost of €10 per hour. Total labor cost was €52,250 for 4,750 hours worked. Direct labor is measured in labor hours. What is the flexible budget variance for direct labor? A) €2,250 Favorable B) €2,250 Unfavorable C) €7,500 Favorable D) €7,500 Unfavorable Answer: B Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 23) The Cheeseman Company makes tables and the following standards have been developed:

Direct Materials Direct Labor

Standard Inputs Expected For Each Unit of Output 10 pounds 3 hours

Standard Price Expected Per Unit of Input $4 per pound $16 per hour

Production of 230 tables was expected in July, but 250 tables were actually completed. Direct materials purchased and used were 2,200 pounds at an actual price of $4.50 per pound. Direct labor cost for the month was $10,620, and the actual pay per hour was $18.00. What is the direct material price variance for July? A) $800 Favorable B) $800 Unfavorable C) $1,100 Favorable D) $1,100 Unfavorable Answer: D Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

24) The Cornell Company makes tables for which the following standards have been developed:

Direct Materials Direct Labor

Standard Inputs Expected For Each Unit of Output 10 pounds 3 hours

Standard Price Expected Per Unit of Input £4 per pound £16 per hour

Production of 200 tables was expected in July, but 220 tables were actually completed. Direct materials purchased and used were 2,000 pounds at an actual price of £4.40 per pound. Direct labor cost for the month was £10,620, and the actual pay per hour was £18.00. What is the direct material quantity variance for July? A) £800 Favorable B) £800 Unfavorable C) £880 Favorable D) £880 Unfavorable Answer: A Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 25) The Matthew Company makes tables for which the following standards have been developed:

Direct Materials Direct Labor

Standard Inputs Expected For Each Unit of Output 17 pounds 3 hours

Standard Price Expected Per Unit of Input $5.20 per pound $16 per hour

Production of 200 tables was expected in May, but 220 tables were actually completed. Direct materials purchased and used were 2,100 pounds at an actual price of $4.40 per pound. Direct labor cost for the month was $10,620, and the actual pay per hour was $18.00. What is the direct labor price variance for the month of May? A) $1,180 Favorable B) $1,180 Unfavorable C) $1,200 Favorable D) $1,200 Unfavorable Answer: B Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

26) The Quinn Company makes tables for which the following standards have been developed:

Direct Materials Direct Labor

Standard Inputs Expected For Each Unit of Output 10 pounds 3 hours

Standard Price Expected Per Unit of Input €4 per pound €16 per hour

Production of 200 tables was expected in June, but 220 tables were actually completed. Direct materials purchased and used were 2,100 pounds at an actual price of €4.40 per pound. Direct labor cost for the month was €10,620, and the actual pay per hour was €18.00. What is the direct labor quantity variance for the month of June? A) €1,120 Favorable B) €1,120 Unfavorable C) €1,260 Favorable D) €1,260 Unfavorable Answer: A Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 27) The Brucker Company makes mugs for which the following standards have been developed:

Direct Materials Direct Labor

Standard Inputs Expected For Each Unit of Output 5 ounces 1.5 hours

Standard Price Expected Per Unit of Input $2 per ounce $8 per hour

28) The Savage Company makes mugs for which the following standards have been developed:

Direct Materials Direct Labor

Standard Inputs Expected For Each Unit of Output 5 ounces 1.5 hours

Standard Price Expected Per Unit of Input $2 per ounce $8 per hour

Production of 400 mugs was expected in July, but 440 mugs were actually completed. Direct materials purchased and used were 2,100 ounces at an actual price of $2.20 per ounce. Direct labor cost for the month was $5,310, and the actual pay per hour was $9.00. What is the direct material quantity variance for July? A) $200 Favorable B) $200 Unfavorable C) $220 Favorable D) $220 Unfavorable Answer: A Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 29) The Tulip Company makes mugs for which the following standards have been developed:

Direct Materials Direct Labor

Standard Inputs Expected For Each Unit of Output 5 ounces 2.5 hours

Standard Price Expected Per Unit of Input $2 per ounce $8 per hour

Production of 400 mugs was expected in August, but 440 mugs were actually completed. Direct materials purchased and used were 2,100 ounces at an actual price of $2.20 per ounce. Direct labor cost for the month was $5,310, and the actual pay per hour was $9.00. What is the direct labor price variance for August? A) $420 Favorable B) $420 Unfavorable C) $590 Favorable D) $590 Unfavorable Answer: D Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

30) The Banks Company makes mugs for which the following standards have been developed:

Direct Materials Direct Labor

Standard Inputs Expected For Each Unit of Output 5 ounces 1.5 hours

Standard Price Expected Per Unit of Input $2 per ounce $8 per hour

Production of 400 mugs was expected in July, but 440 mugs were actually completed. Direct materials purchased and used were 2,100 ounces at an actual price of $2.30 per ounce. Direct labor cost for the month was $5,310, and the actual pay per hour was $9.00. What is the direct labor quantity variance for July? A) $560 Favorable B) $560 Unfavorable C) $630 Favorable D) $630 Unfavorable Answer: A Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 31) In a manufacturing area of a firm, poor product design and problems with the quality of materials will, more than likely, result in a(n) ________ variance or ________ variance. A) unfavorable material efficiency; unfavorable labor usage B) favorable material efficiency; unfavorable labor price C) unfavorable material price; unfavorable labor rate D) unfavorable material price; unfavorable labor usage Answer: A Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 32) One cause of a flexible budget variance for direct labor may be a difference between standard and actual hourly wage rates for factory workers. Answer: TRUE Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

33) A quantity variance for direct materials measures the deviation between the quantity of inputs that should have been used to achieve the actual output and the actual quantity of inputs used to achieve the actual output. Answer: TRUE Diff: 2 LO: 8-6 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 34) The direct materials price variance is based on the standard quantity of inputs allowed for the actual output. Answer: FALSE Diff: 2 LO: 8-6 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 35) The flexible budget variance for direct labor can be broken down into a price variance and an effectiveness variance. Answer: FALSE Diff: 2 LO: 8-6 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 36) The quantity variance and efficiency variance for direct labor are different types of variances. Answer: FALSE Diff: 1 LO: 8-6 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 37) The flexible budget variance for direct labor equals the labor price variance plus the labor quantity variance. Answer: TRUE Diff: 2 LO: 8-6 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 38) A favorable materials price variance may lead to an unfavorable materials usage variance. Answer: TRUE Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

39) Std. price per unit of input Actual price per unit of input Std. inputs allowed per unit of output Actual units of input

Direct Material $12 per foot $14 per foot 5 feet 2,500 feet

Actual units of output

Direct Labor $14 per hour $13 per hour 3 hours 1,550 hours

600 units

Required: Compute the price and quantity variances for direct materials and direct labor. Answer: Direct material: Price variance: ($14 - $12) × 2,500 = $5,000 Unfavorable Quantity variance: [2,500 - (600 × 5)] × $12 = $6,000 Favorable Direct labor: Price variance: ($13 - $14) × 1,550 = $1,550 Favorable Quantity variance: [1,550 - (600 × 3)] × $14 = $3,500 Favorable Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 40) The following data was obtained for a company that makes statues:

Direct material Direct labor

Standard Inputs Expected For Each Unit of Output 5 pounds 1.5 hours

Standard Price Per Unit of Input €12 per pound €12 per hour

During the month of July, the company actually produced 1,000 statutes, which is 100 units less than expected. Direct material purchased and used amounted to 5,500 pounds at a cost of €12.50 per pound. Actual direct labor was 1,450 hours at an actual cost of €13.00 per hour. Required: A) Compute the price and quantity variances for direct materials. B) Compute the price and quantity variances for direct labor. Answer: A) Price variance = (€12.50 - €12.00) × 5,500 = €2,750 Unfavorable Quantity variance = (5,500 - 5,000) × €12 = €6,000 Unfavorable B) Price variance = (€13.00 - €12.00) × 1,450 = €1,450 Unfavorable Quantity variance = (1,450 - 1,500) × €12.00 = €600 Favorable Diff: 2 LO: 8-6 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

41) What are some common causes of unfavorable quantity variances for direct labor? Answer: Some common causes are poor quality of material, untrained workers, poor workmanship, changes in production method, new workers, machine breakdowns, faulty product designs, and inefficient machines. Diff: 2 LO: 8-6 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 8.7 Questions 1) Variable overhead efficiency variances are unfavorable when ________. A) the actual cost-driver activity exceeds the standard activity allowed for the actual output B) the actual cost-driver activity is less than the standard activity allowed for the actual output C) the actual cost-driver activity exceeds the standard activity allowed for the static budget output D) the actual cost-driver activity is less than the standard activity allowed for the static budget output Answer: A Diff: 3 LO: 8-7 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 2) Simmons Company has the following information available for variable overhead costs. Direct labor hours are the cost driver for variable overhead costs. Actual variable overhead costs Standard variable overhead costs Actual direct labor hours Standard direct labor hours per unit Units produced

$4,700 $1.20 per hour 3,750 hours 5 hours 700

What is the variable overhead spending variance? A) $200 Favorable B) $200 Unfavorable C) $500 Favorable D) $500 Unfavorable Answer: B Diff: 3 LO: 8-7 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

3) Dooley Company has the following information available for variable overhead costs. Direct labor hours are the cost driver for variable overhead costs. Actual variable overhead costs Standard variable overhead costs Actual direct labor hours Standard direct labor hours per unit Units produced

$4,700 $1.20 per hour 3,750 hours 5 hours 700

What is the variable overhead efficiency variance? A) $300 Favorable B) $300 Unfavorable C) $500 Favorable D) $500 Unfavorable Answer: B Diff: 3 LO: 8-7 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 4) Indian Company has the following information available for variable overhead costs. Direct labor hours are the cost driver for variable overhead costs. Actual variable overhead costs Standard variable overhead costs Actual direct labor hours Standard direct labor hours per unit Units produced

$5,120 $3.00 per hour 2,000 hours 3 hours 1,000

What is the variable overhead spending variance? A) $880 Favorable B) $1,000 Unfavorable C) $3,880 Favorable D) $3,880 Unfavorable Answer: A Diff: 3 LO: 8-7 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

5) Switsdorf Company has the following information available for variable overhead costs. Direct labor hours are the cost driver for variable overhead costs. Actual variable overhead costs Standard variable overhead costs Actual direct labor hours Standard direct labor hours per unit Units produced

$5,120 $3.00 per hour 2,000 hours 3 hours 1,000

What is the variable overhead efficiency variance? A) $1,000 Favorable B) $2,000 Unfavorable C) $2,000 Favorable D) $3,000 Favorable Answer: D Diff: 3 LO: 8-7 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 6) At 60,000 machine hours, Norwall Company's static budget for variable overhead costs is $180,000. At 60,000 machine hours, the company's static budget for fixed overhead costs is $300,000. Machine hours are the cost driver of all overhead costs. The static budget is based on 60,000 machine hours. At 60,000 machine hours, the company produces 40,000 units. The following data is available: Actual units produced and sold Actual machine hours Actual variable overhead costs Actual fixed overhead costs

42,000 64,000 $185,600 $302,400

What is the variable overhead spending variance? A) $6,400 Unfavorable B) $6,400 Favorable C) $1,000 Favorable D) $1,000 Unfavorable Answer: B Diff: 3 LO: 8-7 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

7) The flexible budget variance for variable overhead costs is composed of a(n) ________ variance and a(n) ________ variance. A) efficiency; effective B) spending; rate C) quantity; efficiency D) spending; efficiency Answer: D Diff: 2 LO: 8-7 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 8) The variable overhead efficiency variance depends on whether the quantity of the cost driver used is more or less than ________. A) the standard amount of output for the expected amount of output B) the quantity allowed for the expected amount of output C) the quantity allowed for the static budget amount of output D) the standard quantity allowed for the actual output Answer: D Diff: 2 LO: 8-7 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 9) The variable overhead spending variance combines ________ and ________ effects. A) price; quantity B) price; efficiency C) efficiency; sales activity D) rate; sales activity Answer: A Diff: 2 LO: 8-7 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 10) Variable overhead efficiency variances are unfavorable when actual cost driver activity exceeds the ________. A) standard cost-driver activity allowed for the actual output B) activity allowed for the expected output C) activity allowed for the planned output D) activity allowed for last period's output Answer: A Diff: 2 LO: 8-7 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

11) The variable overhead spending variance is the difference between the actual variable overhead cost and the amount of variable overhead cost budgeted for the actual level of cost driver activity. Answer: TRUE Diff: 2 LO: 8-7 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 12) The variable overhead efficiency variance indicates to management how much variable overhead cost it may waste by not controlling the use of cost-driver activity. Answer: TRUE Diff: 2 LO: 8-7 AACSB: Reflective thinking skills

8.8 Questions 1) For fixed overhead costs, the spending variance is ________ equal to the flexible-budget variance. A) always B) sometimes C) never D) indeterminate Answer: A Diff: 2 LO: 8-8 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

2) Wendel Company has actual fixed overhead costs of $14,700. Fixed overhead costs based on the flexible budget and the actual use of the cost driver are $14,400. Actual variable overhead costs are $14,500. What is the flexible-budget variance for fixed overhead costs? A) $300 Favorable B) $300 Unfavorable C) $100 Favorable D) $100 Unfavorable Answer: B Diff: 3 LO: 8-8 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 3) Wetzel Company has actual fixed overhead costs of $14,500. Fixed overhead costs based on the flexible budget and the standard use of the cost driver are $14,400. Actual variable overhead costs are $14,700. Flexible budget costs for variable overhead costs are $15,000. What is the flexible-budget variance for fixed overhead costs? A) $100 Favorable B) $100 Unfavorable C) $300 Favorable D) $300 Unfavorable Answer: B Diff: 3 LO: 8-8 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 4) The efficiency variance for fixed overhead costs ________. A) is greater than the flexible budget variance for fixed overhead costs B) is greater than the spending variance for fixed overhead costs C) is greater than the flexible budget variance for variable overhead costs D) does not exist Answer: D Diff: 2 LO: 8-8 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

5) At 60,000 machine hours, Clark Company's static budget for variable overhead costs is $180,000. At 60,000 machine hours, the company's static budget for fixed overhead costs is $300,000. Machine hours are the cost driver of all overhead costs. The static budget is based on 60,000 machine hours. At 60,000 machine hours, the company produces 40,000 units. The following data is available: Actual units produced and sold Actual machine hours Actual variable overhead costs Actual fixed overhead costs

42,000 64,000 $185,600 $302,400

What is the fixed overhead spending variance? A) $2,400 Unfavorable B) $2,400 Favorable C) $1,000 Favorable D) $1,000 Unfavorable Answer: A Diff: 3 LO: 8-8 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 6) The flexible budget variance for fixed overhead costs equals the ________ variance. A) efficiency B) spending C) static budget D) operating budget Answer: B Diff: 2 LO: 8-8 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances

7) Sloth Company reports the following information for the last year of operations: Actual fixed overhead costs(7,000 units) Budgeted fixed overhead costs(10,000 units) Planned level of operations(in units) Actual level of operations(in units)

$77,000 80,000 10,000 7,000

What is the fixed overhead spending variance? A) $3,000 Favorable B) $21,000 Unfavorable C) $24,000 Unfavorable D) $30,000 Favorable Answer: A Diff: 2 LO: 8-8 AACSB: Analytic skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances 8) In the relevant range, fixed overhead costs do not vary with cost driver activity. Answer: TRUE Diff: 2 LO: 8-8 AACSB: Reflective thinking skills Learning Outcome: Discuss and calculate the direct material, direct labor and overhead variances