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Principles of Accounting, Volume 2: Managerial Accounting

Multiple Choice

Principles of Accounting, Volume 2: Managerial AccountingMultiple Choice
Table of contents
  1. Preface
  2. 1 Accounting as a Tool for Managers
    1. Why It Matters
    2. 1.1 Define Managerial Accounting and Identify the Three Primary Responsibilities of Management
    3. 1.2 Distinguish between Financial and Managerial Accounting
    4. 1.3 Explain the Primary Roles and Skills Required of Managerial Accountants
    5. 1.4 Describe the Role of the Institute of Management Accountants and the Use of Ethical Standards
    6. 1.5 Describe Trends in Today’s Business Environment and Analyze Their Impact on Accounting
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Thought Provokers
  3. 2 Building Blocks of Managerial Accounting
    1. Why It Matters
    2. 2.1 Distinguish between Merchandising, Manufacturing, and Service Organizations
    3. 2.2 Identify and Apply Basic Cost Behavior Patterns
    4. 2.3 Estimate a Variable and Fixed Cost Equation and Predict Future Costs
    5. Key Terms
    6. Summary
    7. Multiple Choice
    8. Questions
    9. Exercise Set A
    10. Exercise Set B
    11. Problem Set A
    12. Problem Set B
    13. Thought Provokers
  4. 3 Cost-Volume-Profit Analysis
    1. Why It Matters
    2. 3.1 Explain Contribution Margin and Calculate Contribution Margin per Unit, Contribution Margin Ratio, and Total Contribution Margin
    3. 3.2 Calculate a Break-Even Point in Units and Dollars
    4. 3.3 Perform Break-Even Sensitivity Analysis for a Single Product Under Changing Business Situations
    5. 3.4 Perform Break-Even Sensitivity Analysis for a Multi-Product Environment Under Changing Business Situations
    6. 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  5. 4 Job Order Costing
    1. Why It Matters
    2. 4.1 Distinguish between Job Order Costing and Process Costing
    3. 4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing
    4. 4.3 Use the Job Order Costing Method to Trace the Flow of Product Costs through the Inventory Accounts
    5. 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production
    6. 4.5 Compute the Cost of a Job Using Job Order Costing
    7. 4.6 Determine and Dispose of Underapplied or Overapplied Overhead
    8. 4.7 Prepare Journal Entries for a Job Order Cost System
    9. 4.8 Explain How a Job Order Cost System Applies to a Nonmanufacturing Environment
    10. Key Terms
    11. Summary
    12. Multiple Choice
    13. Questions
    14. Exercise Set A
    15. Exercise Set B
    16. Problem Set A
    17. Problem Set B
    18. Thought Provokers
  6. 5 Process Costing
    1. Why It Matters
    2. 5.1 Compare and Contrast Job Order Costing and Process Costing
    3. 5.2 Explain and Identify Conversion Costs
    4. 5.3 Explain and Compute Equivalent Units and Total Cost of Production in an Initial Processing Stage
    5. 5.4 Explain and Compute Equivalent Units and Total Cost of Production in a Subsequent Processing Stage
    6. 5.5 Prepare Journal Entries for a Process Costing System
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  7. 6 Activity-Based, Variable, and Absorption Costing
    1. Why It Matters
    2. 6.1 Calculate Predetermined Overhead and Total Cost under the Traditional Allocation Method
    3. 6.2 Describe and Identify Cost Drivers
    4. 6.3 Calculate Activity-Based Product Costs
    5. 6.4 Compare and Contrast Traditional and Activity-Based Costing Systems
    6. 6.5 Compare and Contrast Variable and Absorption Costing
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  8. 7 Budgeting
    1. Why It Matters
    2. 7.1 Describe How and Why Managers Use Budgets
    3. 7.2 Prepare Operating Budgets
    4. 7.3 Prepare Financial Budgets
    5. 7.4 Prepare Flexible Budgets
    6. 7.5 Explain How Budgets Are Used to Evaluate Goals
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  9. 8 Standard Costs and Variances
    1. Why It Matters
    2. 8.1 Explain How and Why a Standard Cost Is Developed
    3. 8.2 Compute and Evaluate Materials Variances
    4. 8.3 Compute and Evaluate Labor Variances
    5. 8.4 Compute and Evaluate Overhead Variances
    6. 8.5 Describe How Companies Use Variance Analysis
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  10. 9 Responsibility Accounting and Decentralization
    1. Why It Matters
    2. 9.1 Differentiate between Centralized and Decentralized Management
    3. 9.2 Describe How Decision-Making Differs between Centralized and Decentralized Environments
    4. 9.3 Describe the Types of Responsibility Centers
    5. 9.4 Describe the Effects of Various Decisions on Performance Evaluation of Responsibility Centers
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  11. 10 Short-Term Decision Making
    1. Why It Matters
    2. 10.1 Identify Relevant Information for Decision-Making
    3. 10.2 Evaluate and Determine Whether to Accept or Reject a Special Order
    4. 10.3 Evaluate and Determine Whether to Make or Buy a Component
    5. 10.4 Evaluate and Determine Whether to Keep or Discontinue a Segment or Product
    6. 10.5 Evaluate and Determine Whether to Sell or Process Further
    7. 10.6 Evaluate and Determine How to Make Decisions When Resources Are Constrained
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  12. 11 Capital Budgeting Decisions
    1. Why It Matters
    2. 11.1 Describe Capital Investment Decisions and How They Are Applied
    3. 11.2 Evaluate the Payback and Accounting Rate of Return in Capital Investment Decisions
    4. 11.3 Explain the Time Value of Money and Calculate Present and Future Values of Lump Sums and Annuities
    5. 11.4 Use Discounted Cash Flow Models to Make Capital Investment Decisions
    6. 11.5 Compare and Contrast Non-Time Value-Based Methods and Time Value-Based Methods in Capital Investment Decisions
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  13. 12 Balanced Scorecard and Other Performance Measures
    1. Why It Matters
    2. 12.1 Explain the Importance of Performance Measurement
    3. 12.2 Identify the Characteristics of an Effective Performance Measure
    4. 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added
    5. 12.4 Describe the Balanced Scorecard and Explain How It Is Used
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  14. 13 Sustainability Reporting
    1. Why It Matters
    2. 13.1 Describe Sustainability and the Way It Creates Business Value
    3. 13.2 Identify User Needs for Information
    4. 13.3 Discuss Examples of Major Sustainability Initiatives
    5. 13.4 Future Issues in Sustainability
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Thought Provokers
  15. A | Financial Statement Analysis
  16. B | Time Value of Money
  17. C | Suggested Resources
  18. Answer Key
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 13
  19. Index
1.

LO 6.1Active Frame, Inc., manufactures clear and tinted sport glasses. The manufacturing of clear glasses takes 45,000 direct labor hours and involves 1,700 parts and 115 inspections. The manufacturing of tinted glasses takes 115,000 direct labor hours and involves 1,400 parts and 450 inspections. The traditional method applies $560,000 of overhead on the basis of direct labor hours. What is the amount of overhead per direct labor hour applied to the clear glass products?

  1. $933.33
  2. $157,500
  3. $322.500
  4. $402,500
2.

LO 6.1TyeDye Lights makes two products: Party and Holiday. It takes 80,900 direct labor hours to manufacture the Party Line and 93,500 direct labor hours to manufacture the Holiday Line. Overhead consists of $225,000 in the machine setup cost pool and $149,960 in the packaging cost pool. The machine setup pool has 52,000 setups for the Party product and 98,000 setups for the Holiday product. The packaging cost pool has 26,000 parts in the Party product and 39,200 parts for the Holiday product. Using the traditional cost method of direct labor hours, what is the predetermined overhead rate?

  1. $1.50 per direct labor hour
  2. $2.15 per direct labor hour
  3. $2.30 per direct labor hour
  4. $3.80 per direct labor hour
3.

LO 6.2Which is not a step in analyzing the cost driver for manufacturing overhead?

  1. identify the cost
  2. identify non-value-added costs
  3. analyze the effect on manufacturing overhead
  4. identify the correlation between the potential driver and manufacturing overhead
4.

LO 6.2Overhead costs are assigned to each product based on ________.

  1. the proportion of that product’s use of the cost driver
  2. a predetermined overhead rate for a single cost driver
  3. price of the product
  4. machine hours per product
5.

LO 6.3Which of the following is a reason a company would implement activity-based costing?

  1. The cost of record keeping is high.
  2. The additional data obtained through traditional allocation are not worth the cost.
  3. They want to improve the data on which decisions are made.
  4. A company only has one cost driver.
6.

LO 6.3Which is the correct formula for computing the overhead rate?

  1. estimated use of the cost driver for production/estimated overhead for the activity
  2. estimated overhead for the product/estimated use of the cost driver for the activity
  3. estimated use of the cost driver for production/estimated overhead for the activity
  4. estimated overhead for the activity/estimated use of the cost driver for the activity
7.

LO 6.3A company anticipates the cost to heat the building will be $21,000. Product A takes up 500 square feet of space, while Product B takes up 200 square feet. The activity rate per product using activity-based costing would be which of the following?

  1. $30/square foot
  2. $4.20/square foot
  3. $11/square foot
  4. $15.20/square foot
8.

LO 6.3A company calculated the predetermined overhead based on an estimated overhead of $70,000, and the activity for the cost driver was estimated as 2,500 hours. If product A utilized 1,350 hours and product B utilized 1,100 hours, what was the total amount of overhead assigned to the products?

  1. $35,000
  2. $30,800
  3. $37,800
  4. $68,600
9.

LO 6.3Which is not a step in activity-based costing?

  1. identify the activities performed by the organization
  2. identify the cost driver(s) associated with each activity
  3. compute a cost rate per production
  4. assign costs to products by multiplying the cost driver rate by the volume of the cost driver units consumed by the product
10.

LO 6.3What is the proper order of tasks in an ABC system?

  1. identify the cost drivers, assign the costs to the products, calculate the overhead application rate for each cost pool, identify the cost pools
  2. assign the costs to the products, identify the cost drivers, calculate the overhead application rate for each cost pool, identify the cost pools
  3. identify the cost drivers, identify the cost pools, calculate the overhead application rate for each cost pool, assign the costs to the products
  4. identify the cost pools, identify the cost drivers, calculate the overhead application rate for each cost pool, assign the costs to the products
11.

LO 6.3Which is not a task typically associated with ABC systems?

  1. calculating the overhead application rate for each cost pool
  2. applying a single cost rate
  3. identifying a cost driver
  4. more correctly allocating overhead costs
12.

LO 6.4Which statement is correct?

  1. Activity-based cost systems are less costly than traditional cost systems.
  2. Activity-based cost systems are easier to implement than traditional cost systems.
  3. Activity-based cost systems are more accurate than traditional cost systems.
  4. Activity-based cost systems provide the same data as traditional cost systems.
13.

LO 6.4Activity-based costing systems:

  1. use a single predetermined overhead rate based on machine hours instead of on direct labor
  2. frequently increase the overhead allocation to at least one product while decreasing the overhead allocation to at least one other product
  3. limit the number of cost pools
  4. always result in an increase of at least one product’s selling price
14.

LO 6.4Activity-based costing is preferable in a system:

  1. when multiple products have similar product volumes and costs
  2. with a large direct labor cost as a percentage of the total product cost
  3. with multiple, diverse products
  4. where management needs to support an increase in sales price
15.

LO 6.5Absorption costing is also referred to as:

  1. direct costing
  2. marginal costing
  3. full costing
  4. variable costing
16.

LO 6.5Under variable costing, a unit of product includes which costs?

  1. direct material, direct labor, and manufacturing overhead
  2. direct material, direct labor, and variable manufacturing overhead
  3. direct material, direct labor, and fixed manufacturing overhead
  4. direct material, direct labor, and all variable manufacturing overhead
17.

LO 6.5Under absorption costing, a unit of product includes which costs?

  1. direct material, direct labor, and manufacturing overhead
  2. direct material, direct labor, and variable manufacturing overhead
  3. direct material, direct labor, and fixed manufacturing overhead
  4. direct material, direct labor, and all variable manufacturing overhead
18.

LO 6.5A downside to absorption costing is:

  1. not including fixed manufacturing overhead in the cost of the product
  2. that it is not really useful for managerial decisions
  3. that it is not allowable under GAAP
  4. that it is not well designed for cost-volume-profit analysis
19.

LO 6.5When the number of units in ending inventory increases through the year, which of the following is true?

  1. Net income is the same for variable and absorption costing.
  2. Net income is higher for variable costing than for absorption costing.
  3. Net income is higher for absorption costing than for variable costing.
  4. There is no relationship between net income and the costing method.
20.

LO 6.5Product costs under variable costing are typically:

  1. higher than under absorption costing
  2. lower than under absorption costing
  3. the same as with absorption costing
  4. higher than absorption costing when inventory increases
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