Multiple Choice Answers

Set 1

Question 1
For every unit that a company produces and sells above the breakeven point, its profitability is improved (ignoring taxes) by the unit’s:
A. gross margin.
B. selling price minus fixed cost.
C. variable cost.
D. contribution margin.

Question 2
The unit of measurement used in management accounting is:
A. primarily the future dollar.
B. monetary at historical and current market values.
C. monetary at historical or current market or projected values.
D. the measurement unit used by competing companies.

Question 3
When preparing a report, it is sometimes necessary to sacrifice accuracy for:
A. timeliness.
B. personal feelings.
C. profits.
D. expectations.

Question 4
Primary processes:
A. apply only to a just-in-time environment.
B. include information systems and human resources.
C. add value to a product or service.
D. limit bottlenecks during production.

Question 5
Primary processes are comprised of:accounting.
A. marketing, legal, and accounting services.
B. research and development, marketing, supply, design, production, distribution, and information systems.
C. research and development, design, supply, production, marketing, distribution, and customer service.
D. human resources, legal services, information systems, and management

Question 6
An advantage of value chain analysis is that it allows a company to:
A. evaluate ethical conduct.
B. focus on its core competencies.
C. use the four “w’s.”
D. increase sales to customers.

Question 7
The just-in-time philosophy emphasizes:
A. completing products on schedule.
B. increasing production.
C. finishing all products before starting new ones.
D. eliminating waste.

Question 8
Activity-based management’s primary goal is to reduce:
A. nonvalue-adding costs.
B. defects.
C. inventory size.
D. machine setup time.
Question 9
The balanced scorecard:
A. is rarely used.
B. produces formal reports.
C. only applies to manufacturing companies.
D. links the organization’s perspectives with stakeholders.

Question 10
If a management accountant confides to a relative that his or her company has a confidential plan to merge with another company in the near future, the accountant has:
A. not violated ethical standards.
B. violated ethical standards only if the relative owns stock in the company.
C. violated ethical standards because the accountant and relative could stand to gain personally from that information.
D. not violated ethical standards because the information was relayed to a family member.

Question 11
An example of a period cost is:
A. advertising costs.
B. indirect materials.
C. product design costs.
D. direct materials.

Question 12
Which of the following is a value-adding cost?
A. Depreciation on personnel department equipment
B. Depreciation on factory equipment
C. Depreciation on office equipment
D. Depreciation on sales department equipment

Question 13
All manufacturing costs incurred and assigned to products that are being produced are classified as:
A. variable costs.
B. allocated costs.
C. product costs.
D. overhead costs.

Question 14
Which of the following is the formula used to compute a product’s unit cost?
A. (Direct Materials + Direct Labor) / Number of Units Produced
B. (Direct Materials + Direct Labor + Overhead) / Number of Units Produced
C. (Direct Labor + Overhead) / Number of Units Produced
D. (Indirect Materials + Indirect Labor + Overhead) / Number of Units Produced

Question 15
In a manufacturing environment, direct labor costs initially flow:
A. into the Materials Inventory account.
B. directly to Cost of Goods Sold.
C. into the Work in Process Inventory account.
D. into the Finished Goods Inventory account.

Question 16
Cost of goods manufactured is equal to:
A. Direct Materials + Direct Labor + Overhead.
B. Beginning Work in Process Inventory + Total Manufacturing Costs – Ending Work in Process Inventory.
C. Beginning Work in Process Inventory + Period Costs – Ending Work in Process Inventory.
D. Beginning Work in Process Inventory + Product Costs.

Question 17
To reconcile total manufacturing costs with the total cost of goods manufactured during the period:
A. subtract out all period costs from total manufacturing costs to arrive at cost of goods manufactured.
B. add beginning and subtract ending finished goods inventory to total manufacturing costs.
C. you must know how many goods were sold during the period.
D. add beginning and subtract ending work in process inventory to total manufacturing costs.

Question 18
If the estimated cost driver level is overstated, the: predetermined overhead rate will be understated.
A. predetermined overhead rate will be overstated.
B. product cost will be overstated.
C. cost pool will be understated.

Question 19
The activity base that would be most appropriate in a capital-intensive industry is:
A. direct labor dollars.
B. direct labor hours.
C. sales volume.
D. machine hours.

Question 20
In an activity-based costing system, the first step in assigning costs is to:
A. accumulate costs for each activity.
B. identify the appropriate activities for each function.
C. separate nonvalue-adding activities from value-adding activities.
D. analyze all nonvalue-adding activities to determine if they are necessary support areas.

Set 2

Question 1
Which of the following products probably would be manufactured using a job order costing system?
A. Paper
B. Baseball cards
C. Computer monitors
D. Company business cards

Question 2
Applied overhead exceeds actual overhead when the:
A. Overhead account has a credit balance.
B. journal entry to account for the difference involves a debit to Cost of Goods Sold.
C. Overhead account has a debit balance.
D. company has overspent in the overhead cost area.

Question 3
The total of the dollar amounts on the job order cost cards that have not been completed would be equal to the:
A. cost of goods completed.
B. balance in the Finished Goods Inventory account.
C. Cost of Goods Sold account.
D. balance in the Work in Process Inventory account.

Question 4
The basic document for keeping track of costs in a job order costing system is a:
A. job order cost card.
B. labor time card.
C. process cost report.
D. materials requisition form.

Question 5
When direct materials are issued from inventory to production under a job order costing system, an increase is recorded in:
A. Overhead.
B. Work in Process Inventory.
C. Materials Inventory.
D. Finished Goods Inventory.

Question 6
Unit costs for each job are computed by dividing:
A. estimated total costs by planned units to be produced.
B. actual costs by actual units sold.
C. cost of materials, direct labor, and overhead by number of units produced.
D. estimated total costs by actual units produced.

Question 7
In cost-plus contracts, the “plus” represents:
A. sales price.
B. profit, based on the amount of costs incurred.
C. overapplied overhead costs.
D. the amount of any cost overruns.

Question 8
The balance in the Work in Process Inventory account equals the:
A. balance in the Finished Goods inventory account.
B. balance in the Cost of Goods Sold account.
C. total of the balances on the job order cost sheets of uncompleted jobs.
D. balance in the Overhead account.

Question 9
Which of the following entities probably would use a process costing system?
A. An oil refinery
B. A yacht builder
C. A custom furniture company
D. A custom screw manufacturer

Question 10
Process costing is applicable to production operations that:
A. utilize several processes, departments, or work cells in a series.
B. do not assign overhead costs to operations.
C. produce large and unique machines.
D. are found in only a few industries.

Question 11
Which of the following accurately describes a difference between job order and process costing systems?
A. In job order costing systems, overhead costs are treated as product costs, whereas in process costing systems, overhead costs are treated as period costs.
B. Job order costing systems do not need to assign costs to production, whereas process costing systems do.
C. In job order costing systems, costs are traced to products, whereas in process costing systems, a FIFO method may be used.
D. Since costs are assigned to products in a job order costing system, selling costs are treated as product costs in the job order costing system, whereas they are treated as period costs in process costing systems.

Question 12
The reason for combining direct labor and overhead costs together and calling them “conversion costs” is that:
A. they both are direct costs of production.
B. the equivalent unit amount for direct materials will be the same as that for direct labor and overhead costs.
C. both types of costs usually are incurred uniformly throughout the production process.
D. the costs for direct labor and overhead are not accounted for separately.

Question 13
Which of the following statements is true?
A. The Work in Process Inventory account is the focal point of process costing.
B. To compute unit costs using the FIFO costing method, total costs of direct materials, direct labor, and overhead that have been accumulated in the Work in Process Inventory account or accounts are divided by the units worked on during the period.
C. Equivalent units usually are computed for direct materials and manufacturing overhead combined.
D. Labor costs are accounted for differently from manufacturing overhead costs in a process costing system.

Question 14
Equivalent units of production usually are determined for:
A. direct materials only.
B. direct materials and conversion costs.
C. direct materials and direct labor costs only.
D. conversion costs only.

Question 15
Measures of equivalent production are necessary in process costing because:
A. job order costing procedures cannot be applied.
B. unit costs are computed by departments or processes at fixed time intervals.
C. perpetual inventories are not employed in process plants.
D. production methods are more complex than in job order costing systems.

Question 16
Which of the following applies to process costing but NOT to job order costing?
A. Only one Work in Process Inventory account
B. Equivalent production units
C. Production of unique items
D. Multiple unit job order

Question 17
An advantage of using the average costing method to process costing as opposed to the FIFO costing method is that it:
A. is a little easier to work with.
B. is more accurate.
C. costs less to utilize.
D. requires little knowledge of process costing.

Question 18
The computation of equivalent units is exactly the same under the FIFO costing method and the average costing method when there is no:
A. ending work in process inventory.
B. ending finished goods inventory.
C. beginning finished goods inventory.
D. beginning work in process inventory.

Question 19
To find cost per equivalent unit of production using the average costing method, the: amount of equivalent units is divided:
A. by costs from the current period.
B. into costs from the current period.
C. into total costs to be accounted for.
D. by total costs to be accounted for.

Question 20
Which of the following statements about a department’s costs per equivalent unit calculated using the average costing method compared with a FIFO costing method is true?
A. They could be higher or lower.
B. They would be the same.
C. They would be lower.
D. They would be higher.

Set 3

Question 1
Customer relations are usually part of:
A. the supply chain.
B. the value chain.
C. both the value chain and the supply chain.
D. neither the value chain nor the supply chain.

Question 2
Which of the following statements is true?
A. A company’s value chain is not part of its supply chain.
B. A manufacturer’s supply chain typically includes research and development and customer service.
C. A company’s supply chain includes the value chains of its suppliers.
D. Your supplier’s suppliers are part of your value chain.

Question 3
Process value analysis (PVA) identifies all activities of a production and/or assembly operation for the purpose of:
A. preparing budgets based on activity centers.
B. determining the value of the process.
C. replacing cost drivers used in cost assignment analyses with activities.
D. relating cost assignment to the activities that caused the cost to be incurred.

Question 4
A nonvalue-adding activity is defined as a(n):
A. administrative or support activity that adds overhead cost to the product and increases its market value.
B. activity that adds cost to a product but does not increase its market value.
C. activity that adds no cost to the product but increases its market value.
D. wasteful but unavoidable production activity.

Question 5
Product unit costs computed using activity-based costing compared to product unit costs computed using a traditional costing approach will:
A. sometimes be the same.
B. always be higher.
C. always be the same.
D. always be lower.

Question 6
A framework for classifying value-adding and nonvalue-adding activities according to the level at which their costs are incurred is called a:
A. bill of activities.
B. full product cost.
C. value chain.
D. cost hierarchy.

Question 7
Which one of the four levels of the cost hierarchy would be used by a dress manufacturer that uses activity-based management for sewing seams on a garment?
A. Unit-level activity
B. Batch-level activity
C. Product-level activity
D. Facility-level activity

Question 8
The initial step in achieving the efficiency of a just-in-time system is to:
A. redesign the plant layout.
B. replace laborers with machines.
C. stop ordering materials for inventory.
D. identify products that are not profitable.

Question 9
Backflush costing aims at reducing waste in the:
A. accounting system.
B. cost of goods sold.
C. storage of raw materials.
D. production process.

Question 10
The typical relationship between variable costs and volume may be described best as which of the following?
A. Costs increase in an erratic, unpredictable fashion with changes in volume.
B. Costs stay fairly constant with changes in volume.
C. Costs increase with changes in volume up to a certain point and then remain constant.
D. Costs increase in direct proportion to increases in volume.

Question 11
The variable cost per unit __________ as the number of sales increase.
A. decreases
B. changes
C. remains constant
D. increases

Question 12
The level of operating capacity that is needed to meet expected sales demand is called:
A. practical capacity.
B. normal capacity.
C. ideal capacity.
D. excess capacity.

Question 13
Theoretical capacity reduced by normal and anticipated work stoppages is called:
A. practical capacity.
B. normal capacity.
C. ideal capacity.
D. excess capacity.

Question 14
Theoretical capacity refers to:
A. extra machinery and equipment kept on hand.
B. the maximum productive output possible.
C. an output level that allows for normal work stoppages.
D. the operating capacity that will meet expected sales demand.

Question 15
The high-low method:
A. calculates variable costs per unit by dividing the difference in the high and low activity levels by the high and low costs.
B. assumes that the fixed portion of the mixed cost is the lowest monthly cost incurred during the period under consideration.
C. allows differentiation between fixed and variable costs when dealing with mixed costs.
D. combines the fixed and variable portions of a cost to determine the total cost.

Question 16
The equation for finding the breakeven point may be written as:
A. S – VC – FC = 0.
B. VC – FC = S.
C. S + FC = VC.
D. S + VC + FC = 0.

Question 17
The breakeven point is:
A. where fixed and variable costs reach the upper level of the relevant range.
B. the level of activity where all fixed costs are recovered.
C. where total revenue equals total costs.
D. where fixed costs meet variable costs.

Question 18
The equation that will provide the breakeven point in units (SP = selling price) is:
A. BE units = (SP – VC) ÷ FC per unit.
B. VC per unit + FC = SP per unit x BE units.
C. BE units = FC ÷ CM per unit.
D. SP per unit – VC per unit = FC ÷ BE units.

Question 19
Contribution margin equals sales minus:
A. cost of goods sold.
B. total costs.
C. fixed costs.
D. variable costs.

Question 20
In comparing management accounting with financial accounting, which of the following statements is FALSE?
A. Management accounting is primarily used by managers, employees, and supply chain partners.
B. The report format for financial accounting is based on generally accepted accounting principles.
C. The purpose of management accounting reports is to provide information for planning, control, performance measurement, and decision making.
D. Financial accounting reports are prepared as needed.