ACCT 691 – Final Exam

Part I: True/False


1. One of the companies to first employ a successful cost leadership strategy was Carnegie Steel Company.


2. The number of units sold is a better independent variable than square feet of all manufacturing facilities in estimating the cost function of a headphone manufacturer.


3. The break-even point for a company with multiple products cannot be determined using a unit contribution margin calculation since there are multiple products each of which has a different unit contribution margin.


4. Differential analysis is an approach to the analysis of relevant costs that focuses on the costs that differ under alternative actions


5. If costs are accurately estimated when establishing an annual predetermined overhead rate, there should never be an overapplied or underapplied overhead balance.


6. The plant-wide rate approach is the simplest to apply, but it is also the most costly to implement, compared to a departmental or activity-based cost allocation system.


7. Just-in-time strives to eliminate inventories by using a pull approach


8. Benchmarking is just a more elegant term for corporate espionage


9. All type of Operations budgeting emphasizes activities performed, rather than traditional expense categories?


10. Unfavorable materials quantity variances may be partially explained by unfavorable materials price variances


11. The balanced scorecard approach for evaluating managerial performance is designed to overcome the limits of single measure performance systems, such as ROI or EVA, by evaluating performance on several key dimensions.


12. A “clean” audit report asserts – among other things – that (a) the auditor has prepared all necessary financial statements and (b) management has expressed its opinion that they are prepared in conformity with GAAP.


13. According to the revenue recognition principle, companies are required to record revenue when cash is received as this provides the most objective evidence for the auditors.


14. To close revenue accounts, a company must debit Retained Earnings because Revenue has a credit balance and debits must equal credits.


15. Net operating asset turnover (NOAT) measures a company’s profitability.


16. When a company reports a deferred tax asset it means that the company will receive a tax benefit in the future.


17. LIFO inventory costing yields more accurate reporting of the inventory balance on the balance sheet.


18. Fair-value changes in available-for-sale investments are recognized in the income statement as unrealized gains or losses.


19. A bond selling for an amount above face value is said to be selling at a discount.


20. A stock split is a monetary transaction. Consequently, a company that splits its stock must make several financial statement adjustments


21. The purpose of cost assignment is to match costs in a common cost pool to cost objectives


22. Target costing is generally more beneficial with products that have a short life cycle, rather than a long life cycle


23. The traditional justifications of budgeting include improved communications, improved planning, and improved sales.


24. A labor efficiency variance results from the inefficient use of labor quantity to produce a given amount of product or service


25. In the short run, the best profitability number for deciding the impact of discontinuing a segment is segment margin.


Part II: Multiple Choice


1.The process of selecting strategies to achieve goals is often referred to as:

A)    Controlling

B)     Organizing

C)     Motivating

D)    Planning


2. This is an organizational cost driver for a discount department store chain:

A)    The decision to price lower than a key competitor

B)     The decision to rearrange merchandise within a store

C)     The decision to issue a purchase order for raw materials

D)    The decision to sale product globally versus only domestically


3. Mary French uses gas to heat her home.  She has accumulated the following information regarding her monthly gas bill and monthly heating degree-days.  The heating degree-days value for a month is found by first subtracting the average temperature for each day from 65 degrees and then summing these daily amounts together for the month.


Month Heating Degree-Days Gas Bill
February 1,900 $195
April 600 $78


What will be the increase in Mary’s monthly gas bill per heating degree-day using the high-low method?

A)    $    0.09

B)    $    0.39

C)    $  46.00

D)    $117.00


4. The following procedure performed by a dairy is the best example of a unit level activity within a manufacturing cost hierarchy:

A)    Delivering dairy products to a grocery store

B)    Filling milk into half-gallon cartons

C)    Homogenizing milk in specially designed tanks

D)    Receiving milk from farms










5. Rozella’s income statement is as follows:


Sales (10,000 units) $120,000
Less variable costs –  48,000
Contribution margin $72,000
Less fixed costs –  24,000
Net income $  48,000


What is the unit contribution margin?

A)    $12.00

B)    $  7.20

C)    $  4.80

D)    $  2.40



6. George Company sells one product at a price of $20 per unit.  Variable expenses are 40 percent of sales, and fixed expenses are $20,000.  The sales dollars level required to break even are:

A)    $  2,500

B)    $12,000

C)    $33,333

D)    $50,000


7. Which of the following statements is true when making a decision between two alternatives?

A)    Fixed costs are never relevant.

B)     Taxes are never relevant.

C)     Variable costs may not be relevant when the decision alternatives have the same activity levels.

D)    Variable costs are not relevant when the decision alternatives have different activity levels.


8. The point in the production process where joint products become separately identifiable is called:

A)    The conversion point

B)     The point of sale

C)     The split-off point

D)    The throughput point


9. The method of accounting for inventory that assigns all manufacturing costs to inventory is sometimes referred to as:

A)    Prime costing

B)     FIFO

C)     The weighted average cost method

D)    Absorption costing


10. Which of the following accounts increases when raw materials are used?

A)    Finished Goods Inventory

B)     Raw Materials Expense

C)     Raw Materials Inventory

D)    Work-in-Process Inventory


11. In an activity-based costing model, total costs assigned to cost objectives may include:

A)    Only direct costs

B)     Both direct costs and resource costs

C)     Both activity costs and resource costs

D)    Both direct costs and activity costs






12. Assume that total costs assigned to the setup activity cost pool in March are $80,000 and 100 setups were completed in March.  Further, assume that during March machines were setup 20 times to make product X5.  The total setup cost that would be assigned to product X5 would be:

A)    $    1,600

B)     $  16,000

C)     $160,000

D)    Cannot be determined


13. Check Company has two service departments whose direct department costs are $30,000 and $50,000, respectively, and two producing departments whose direct department costs are $320,000 and $300,000, respectively.  The combined total department costs for the producing departments after allocating the service departments are:

A)    $700,000

B)     $830,000

C)     $780,000

D)    $130,000


14. Cycle time is comprised of each of the following components except:

A)    Planning time

B)     Set-up time

C)     Waiting time

D)    Inspection time


15. Which of the following is not a drawback to cost-based pricing?

A)    Cost-based pricing requires accurate cost assignments.

B)     The greater the portion of unassigned costs, the greater the likelihood of overpricing and underpricing individual products.

C)     Cost-based pricing assumes goods or services are relatively scarce, and customers who want a product or service are, generally, willing to pay the price.

D)    In a competitive environment, cost-based approaches increase the time and cost of bringing new products   to market


16. Deb Burg is considering the production of a new line of jeans.  Based on preliminary market research, management has decided that each pair of jeans should be priced at $160.  Furthermore, management believes that the profit margin should be 30 percent of sales revenue. What is the target cost?

A)    $  32

B)     $  80

C)     $112

D)    $128


17.Which budgeting approach is widely used in government and non-profit organizations?

A)    The continuous budgeting approach

B)     The input/output approach

C)     The incremental approach

D)    Participation budgeting


18.All of the following are true of the sales budget except:

A)    It contains a forecast of unit sales volume

B)     It contains a forecast of sales dollars

C)     It may contain a forecast of sales collections

D)    It may contain a forecast of Kaizen activities


19. Which of the following departments would most likely be classified as a cost center in a large department store?

A)    The men’s clothing department

B)    The hardware department

C)    The women’s shoe department

D)    The accounting department


20. A flexible budget variance for a manufacturing cost is computed as the difference between:

A)    Flexible budget costs and static budget costs

B)    Actual costs and flexible budget costs

C)    Departmental costs and cost center costs

D)    Flexible budget costs and original budget costs


21. The term “division margin” is used to describe the:

A)    Excess of manufacturing margin over all variable expenses

B)    Sum of division cost of goods sold and net income

C)   …

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