Accounting 102 Chapter 4, CH 2, Chapter 2, Accounting Test 2, ACCT Test 2, Accounting cha, Exams of Accounting

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Accounting 102 Chapter 4, CH 2, Chapter 2, Accounting Test 2, ACCT Test 2,

Accounting chapter quizzes 11,12,13, quiz 3 accounting exam 2, ACCT Chap 4,

Accounting 102 Chapter 1, Accounting 102 Chapter 2, Accounting 102 Chapter 3

(Questions And Answers 100% Pass)

The process of assigning a cost to two or more designated cost objects is - ANS-✔✔cost allocation

Of the following statements, which is NOT true concerning indirect costs? - ANS-✔✔An indirect cost can be fixed but it cannot be variable

Logan Corporation has 30 employees, 20 in Department A and 10 in Department B. Logan incurred $180,000 in fringe benefits costs last year. How much in fringe benefit costs should be allocated to Department A? - ANS-✔✔$120,

Which of the following would be classified as an indirect cost in a department store? Assume the cost object is the children's department. - ANS-✔✔utility costs

Use the following data to answer the next two questions:

Factory overhead is estimated to be $40,000 and is applied based on direct labor dollars. This overhead cost is not traceable to any particular product.

Factory overhead allocated to Product 2 is - ANS-✔✔$13,

The total cost of Product 1 is - ANS-✔✔$65,

Saylind Molding paid $280,000 in rent for the year. The company's three departments are headrests, armrests, and air ducts. The departments occupy 5,000, 6,300, and 2,700 square feet, respectively. How much of the rent cost should be allocated to the products made in the air ducts department? - ANS-✔✔ $54,

Employees of DTI, Inc., worked 1,600 direct labor hours in January and 1,000 direct labor hours in February. DTI expects to use 18,000 direct labor hours during the year, and expects to incur $22,500 of workers compensation insurance cost for the year. The cash payment for this cost will be paid in April. How much insurance premium should be allocated to products made in January and February? - ANS-✔ ✔$2,000; $1,

Costs that can be traced to objects in a cost-effective manner are called - ANS-✔✔direct costs

Which of the following is the most logical cost driver for allocating the telephone bill among four departments? - ANS-✔✔telephone usage in minutes

Alpha Company is selecting a cost driver to use in allocating utilities costs to its departments. The best cost driver - ANS-✔✔has a strong cause-and-effect relationship to the cost being allocated.

is one for which information is readily available.

seems acceptable and reasonable to the managers of the departments.

All of the above

Which of the following best identifies the decision-making relationship between cost drivers, cost objects and accumulated cost? - ANS-✔✔Cost drivers are used to allocate estimated accumulated cost to cost objects

When manufacturing air conditioners, which of the following would be considered an indirect cost? - ANS-✔✔Cost of inspecting air conditioners

The Human Resources department costs total $162,800. The Human Resources department is responsible for recruiting, hiring and managing benefits. Which of the following cost drivers would be most appropriate for allocating the Human Resources department costs? - ANS-✔✔Number of part time employees

sales prices (per gallon) are $160 for HC and $480 for HL. Using gallons as the allocation base, how much pre-mix is allocated to HC department? - ANS-✔✔$

Durden Soap manufactures bar soap and liquid soap. Durden pays the quality inspector a salary of $4,000 per month. Durden produced 8,000 units in June, and 12,000 units in July. What is the quality inspection cost per unit in June and in July? - ANS-✔✔$.50 June; $.33 July

Durden Soap incurs the following indirect costs per month:If utilities and rent are combined to form a pool, which cost driver is best for cost allocation? - ANS-✔✔square footage occupied by each department

Durden Soap incurs the following indirect costs per month: Durden expects to manufacture 80,000 units during the coming year. Durden manufactured 3,000 units in March, and 8,000 units in April. What is the amount of overhead cost allocated to March and April? - ANS-✔✔$805.50 March; $2,148 April

Choice Beef must assign $3,450 in indirect costs using 5,250 square feet as the allocation basis. Choice Beef assigns these costs to three departments. The allocation rate is: - ANS-✔✔$.66 per square foot.

Select the true statement - ANS-✔✔As volume decreases fixed cost per unit increases

Fixed cost per unit is determined by dividing the amount of total fixed cost by the number of units. If volume (number of units) increases or decreases total fixed cost remains constant. When total fixed cost (numerator) remains constant while the number of units (denominator) increases the cost per unit decreases. When total fixed cost remains constant while the number of units decreases, fixed cost per unit increases. Variable cost per unit remains constant regardless of changes in volume.

At lunchtime, Pete's Chilly Dogs sells hot dogs, chips, and soft drinks from five portable hot dog carts stationed on busy street corners. The depreciation cost on the carts is $1,000 per year for each cart. The company buys supplies (hot dogs, chips, cups, napkins) as needed. The 5 cart operators are each paid $8,000 per year plus 5% of sales revenue. Relative to the number of hot dog carts, the depreciation cost is - ANS-✔✔variable.

The more hot dog carts in use the greater the total depreciation charge. Since the total amount of depreciation cost increases or decreases in proportion to the number of carts in service, it is a variable cost under these circumstances.

At lunchtime, Pete's Chilly Dogs sells hot dogs, chips, and soft drinks from five portable hot dog carts stationed on busy street corners. The depreciation cost on the carts is $1,000 per year for each cart. The company buys supplies (hot dogs, chips, cups, napkins) as needed. The 5 cart operators are each paid $8,000 per year plus 5% of sales revenue. Relative to the number of customers at a particular hot dog stand, the depreciation cost is - ANS-✔✔fixed.

Since total depreciation charge does not change in relation to the number of customers that buy food at a particular stand, it is a fixed cost.

At a production and sales level of 3,000 units, Bastion Company incurred $60,000 of fixed cost and $36,000 of variable cost. When 4,000 units of product are produced and sold the company's cost per unit is: - ANS-✔✔$

Based on the behavior shown in the following table, which of the following is a variable cost? - ANS-✔✔ When volume increases variable cost per unit remains constant. Since the per unit cost of materials remains constant regardless of the number of units produced, it is a variable cost. Also, when volume increases total variable cost increases. Since the total labor cost does not increase in proportion to the increase in number of units produced it is a mixed cost.

Fran Company is currently operating profitably. The company has a fixed cost structure. Based on this information which of the following statements is true? - ANS-✔✔If volume increases by 20%, profitability will increase by more than 20%.

Since total fixed costs do not change as volume increases, they act as a lever that causes small changes in revenue to have disproportionate effects on net income. A small percentage increase in revenue will cause a larger percentage increase in net income. A small percentage decrease in revenue will cause a

$25. Dazzling Dogs maintains its $35 price. Which of the following is true? - ANS-✔✔Dazzling Dogs' profits will decrease by more than Elegant Dogs' profits will increase.

Elegant Dogs:

Before:

Rev= (4500*35)= 157500

Cost= (45000)

Contrib to profit = 112500

After:

Rev= 6500*25=

Cost = (45000)

Contrib to profit = 117500

Dazzling Dogs:

Before:

Rev= (4500*35)= 157500

Cost= (4500*10)=(45000)

Contrib to profit = 112500

After:

Rev= 2500*35=

Cost = 2500*10=(45000)

Contrib to profit = 62500

As shown above Elegant Dogs is able to increase its profitability by drawing customers away from Dazzling Dogs. Since Elegant Dogs has a fixed cost structure, revenue increases while costs remain constant. Therefore, net income increases disproportionately. In contrast because Dazzling Dogs has a

variable cost structure, the decrease in volume (lost sales to Elegant Dogs) results in proportionate decreases in net income.

Which of the following statements is true? - ANS-✔✔A fixed cost structure has more risk of volatile changes in net income than a company with a variable cost structure.

Fixed cost causes operating leverage. A cost structure that is strictly fixed generates the highest level of operating leverage and highest risk of income volatility. A cost structure that is strictly variable has no operating leverage. Leverage in a mixed cost structure depends on the relative portion of fixed versus variable components. Those with a greater proportion of fixed cost will have a higher level of risk of income volatility. Those with a greater portion of variable cost will have less risk of income volatility.

The contribution margin is determined by subtracting - ANS-✔✔variable product and variable period cost from sales.

Assuming sales equals production, and beginning and ending inventories are zero, The amount of net income determined for an accounting period will be the same regardless of whether the income statement is prepared under a contribution margin format used in managerial accounting or the product costing format use in financial accounting. This statement is

rev: 01_16_2015_QC_CS-3858 - ANS-✔✔True

The amount of total cost and net income will be the same regardless of which format is used. The difference between the two formats centers on how costs are categorized. In the format used for public reporting (financial accounting), costs are divided into product versus period (general, selling, and administrative) cost categories. In contrast, the contribution margin format (managerial accounting) shows the costs being divided into fixed versus variable categories. The total cost is the same. The only difference is how the costs are categorized. Since the total amount of revenue and costs are the same, the net income is the same regardless of the format used to develop the income statement.

revenue can produce a dramatic decrease in net income. As a result, highly leveraged companies have more opportunity and greater risk than companies that a have lower operating leverage.

The magnitude of operating leverage can be determined by which of the following formulas? - ANS-✔✔ =CM/Net Inc

The following information was drawn from the records of Calico Company. Based on this information the magnitude of operating leverage is approximately (round to nearest hundredth): - ANS-✔✔1.

Revenue - Variable Cost = Contribution Margin

$150,000 − $75,000 − $5,000 = $70,

Magnitude of Operating Leverage: Contribution Margin ÷ Net Income

$70,000 ÷ $61,000 = 1.15 times.

At a sales level of $270,000, the magnitude of operating leverage for Donuts Unlimited is 2.8. If number of units sold increase by 15%, profits will increase by: - ANS-✔✔42%

%Increase in Net Income = %Increase in Revenue × Magnitude of Operating Leverage %Increase in Net Income = 15% × 2.8 = 42%

Omega Company has sales of $300,000 and cost of goods sold of $200,000. The cost of goods sold is a variable cost. The Company incurred $20,000 of fixed operating expenses and $40,000 of variable operating expenses. Based on this information a 10% increase in revenue will produce a - ANS-✔✔15% change in net income

Magnitude of Operating Leverage: Contribution Margin ÷ Net Income: $60,000 ÷ $40,000 = 1.5 times

% Increase in Net Income = % Increase in Revenue × Magnitude of Operating Leverage

% Increase in Net Income = 10% × 1.5 = 15%

Handy Hiking produces backpacks. In the previous year, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 4,000 backpacks at a total cost of $110,000. In January, it produced 2,500 backpacks at a total cost of $87,500. Using the high/low method, the average variable cost per of producing a backpack was: - ANS-✔✔$

Variable cost per unit = Change in total cost ÷ Change in total volume

Variable cost per unit = (110,000 − 87,500) ÷ (4,000 − 2,500) = $

Handy Hiking produces backpacks. In 2005, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 4,000 backpacks at a total cost of $110,000. In January, it produced 2,500 backpacks at a total cost of $87,500. Using the high/low method, the total estimated fixed cost was - ANS-✔✔$50,

Computed at the high point:

Total cost − Variable cost = Fixed cost

$110,000 − (4,000 units × $15) = $50,

Which of the following statements regarding scatter graphs is true? - ANS-✔✔Scatter graph analysis may rely on visual judgment to draw a line that follows a linear path through the plotted points in a data set.

Scatter graph analysis may be used to assess the accuracy of the high/low method of estimating fixed and variable costs.

Scatter graph analysis may be used in conjunction with the high/low method, and regression analysis as means of estimating variable and fixed costs.

For the last two years BRC Company had net income as follows:

Year 1 Year 2

Net Income $160,000 $200,

What was the percentage change in income from Year 1 to Year 2? - ANS-✔✔% change = (Alternative measure − Base measure) ÷ Base measure

% change = ($200,000 − $160,000) ÷ $160,000 = 25%

25% increase

Hard Nails and Bright Nails are competing nail salons. Both companies have the same number of customers. Both charge the same price for a manicure. The only difference is that Hard Nails pays its manicurists on a salary basis (i.e., a fixed cost structure) while Bright Nails pays its manicurists on the basis of the number of customers they serve (i.e., a variable cost structure). Both companies currently make the same amount of net income. If sales of both salons increase by an equal amount, Hard Nails: - ANS-✔✔will earn a higher profit than Bright Nails.

The following income statement is provided for Ramirez Company for the current year:

-Sales revenue (2,500 units × $40 per unit) $ 100,

-Cost of goods sold (variable; 2,500 units × $16 per unit) (40,000)

-Cost of goods sold (fixed) (8,000)

-Gross margin 52,

-Administrative salaries (12,000)

-Depreciation (8,000)

-Supplies (2,500 units × $4 per unit) (10,000)

-Net income $ 22,

What amount was the company's contribution margin? - ANS-✔✔Contribution margin = Revenues − Variable expenses

Contribution margin = $100,000 − ($40,000 + $10,000) = $50,

The following income statement is provided for Vargas, Inc.

-Sales revenue (1,500 units × $19.00 per unit) $ 28,

-Cost of goods sold (variable; 1,500 units × $9.00 per unit) (13,500)

-Cost of goods sold (fixed) (3,000)

-Gross margin 12,

-Administrative salaries (5,000)

-Depreciation (4,000)

-Supplies (1,500 units × $1.00 per unit) (1,500)

-Net income $ 1,

What is this company's magnitude of operating leverage? (Round your answer to 2 decimal places.) - ANS-✔✔Contribution margin = Revenues − Variable expenses

Contribution margin = $28,500 − ($13,500 + $1,500) = $13,

Magnitude of operating leverage = Contribution margin ÷ Net income

Total cost = Variable cost + Fixed cost

Fixed cost = Total cost − Variable cost

Fixed cost = $800,000 − (80 units × $6,000 per unit) = $320,

Which of the following statements concerning cost estimation models is incorrect?

A.

Cost estimation models are not typically considered valid for activity levels that fall outside of the relevant range of operations.

B.

The managerial judgment method of determining cost behavior requires extensive knowledge of the company's operations.

C.

The equation derived using the high low method considers the lowest and highest values for the independent variable.

D.

Regression analysis is the least accurate method used to develop cost estimation models.

Yorrect.E.uranswer is co

The scattergraph method is advantageous because decision makers are able to easily identify outliers. - ANS-✔✔

Ch 6 - ANS-✔✔

In order to use cost for decision making purposes, managers need to understand the _________ categorizations of cost - ANS-✔✔behavioral

Total variable costs are ____ proportional to changes in activity level - ANS-✔✔directly - as activity level decreases, so do the total variable costs, as activity level increases so do the total variable costs

Variable costs do not change on a ______ - ANS-✔✔per unit basis

Unit fixed costs are ______ proportional to changes in activity level - ANS-✔✔indirectly - as the activity level increases, the unit fixed cost decreases, as the activity level decreases, unit fixed cost increases

Fixed costs do not change in ______ - ANS-✔✔total

_______ costs contain both variable and fixed components - ANS-✔✔fixed

As the activity level increases, the total mixed costs ______ and per unit mixed costs ________. - ANS-✔ ✔increases; decreases

As the activity level decreases, the total mixed costs _______ and per unit mine cost ________ - ANS-✔ ✔decrease; increases

the range over which the identified cost behaviors are valid. - ANS-✔✔relevant range

Managers can predicts costs accurately only if they use cost info from the appropriate - ANS-✔✔ relevant range

Requires managers to use their judgement to determine cost behavior and develop a cost behavior formula - ANS-✔✔account analyses

Only managers who have ________ should be allowed to use account analyses - ANS-✔✔in depth knowledge of companies operations

This method is _____ due to the visual placement of the line on the data points - ANS-✔✔subjunctive

Identifies the highest and lowest cost driver activity levels (independent variable, x) and pairs the activity levels with their related costs (dependent variable, y) - using these two data points, the unit variable cost and fixed costs are calculated and a cost behavior formula is created - ANS-✔✔high-low method

Managers should verify that the high and low data points are not _______ before using them to create the cost behavior formula - ANS-✔✔outliers

the high low method is more ________ than the first tow methods but since it only uses two data points, it is not as ______ as the last method we discussed - ANS-✔✔objective; accurate

a statistical procedure used to determine the cost behavior formula - the most accurate and objective method available to predict cost behavior - ANS-✔✔regression analysis

regression is simple to complete using available __________ - ANS-✔✔spreadsheet technology

3 pieces of info we will use found in the output: - ANS-✔✔Intercept coefficient, X Variable 1 coefficient, R-squared value

represents the fixed costs (y-intercept) - ANS-✔✔intercept coefficient

represents the unit variable cost (slope) - ANS-✔✔x variable 1 coefficient

"goodies of fit" measures - ANS-✔✔R-squared

the range of R squared value is between - ANS-✔✔0 and 1

If R-squared is close to 0, the the cost driver used in the analyses - ANS-✔✔does not fit the date and should not be used to predict the costs

If R - squared is close to 1, then the cost driver used in the analysis - ANS-✔✔does fit the data and should be used to predict the costs

How costs/ respond to changes in activity level - ANS-✔✔cost behavior

Range over which formal is valid - ANS-✔✔relevant range

Advantages of account analysis - ANS-✔✔a person is involved... bring info about the mkt, customers, and suppliers "to the table" that isn't "known" by a computer

Disadvantages of account analysis - ANS-✔✔subjective (since equation based on judgment) not just anyone should use ( should be someone with an interactive working knowledge of company)

Advantage of scatter plot - ANS-✔✔provides a picture (this shows if there is linear relationship between x and y AND shows if a potential outlier)

disadvantages of scatter plot - ANS-✔✔subjective (since placement of the line of best fit could vary)

advantages of high low method - ANS-✔✔based on 2 actual data points, objective ( formula developed based on rules)

disadvantages of high low method - ANS-✔✔possible that one of the 2 data points used could be an outlier (why it would be important to graph the data points first before running the high low method)