ACCY 2 Midterm 2

Which of the following is an assumption underlying standard CVP analysis: A. In manufacturing companies, inventories always change. B. Fixed expenses will change as volume increases. C. The price of a product or service is expected to change as volume changes. D. In multiproduct companies, the sales mix is constant.

There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget? A. It is calculated based on the sales budget and the desired ending inventory. B.It details the required raw materials purchases. C. It summarizes the costs of producing units for the budget period. D. It details the required direct labor hours.

Which of the following statements is correct with regard to a CVP graph? A. A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line. B. A CVP graph shows the maximum possible profit. C. A CVP graph assumes that total expense varies in direct proportion to unit sales. D. A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.

Net operating income computed under variable costing would exceed net operating income computed using absorption costing if: A. units sold exceed units produced. B. units sold are less than units produced. C. units sold equal units produced. D. the average fixed cost per unit is zero.

True or False: Differences between the static planning budget and the flexible budget show what should have happened because the actual level of activity differed from what had been planned

In a flexible budget, what will happen to fixed costs as the activity level increases?

The usual starting point for a master budget is:

A reason why absorption costing income statements are sometimes difficult to interpret is that: A. they omit variable expenses entirely in computing net operating income. B. they include all fixed manufacturing overhead on the income statement each year as a period cost. C. they ignore inventory levels in determining cost of goods sold. D. they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.

True or False:In a CVP graph, the anticipated profit or loss at any given level of sales is measured by the vertical distance between the total revenue line (sales) and the total fixed expense line.

True or False: Fixed costs should not be ignored when evaluating how well a manager has controlled costs.

In its first year of operations, Bronfren Corporation produced 800,000 sets and sold 780,000 sets of artificial tan lines. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.) Variable costing Absorption costing A) No effect Increase B) Decrease Increase C) Decrease Decrease D) No effect Decrease

When using a flexible budget, a decrease in activity within the relevant range: A. increases variable cost per unit. B.decreases total costs. C. decreases variable cost per unit. D. increases total costs.

When sales exceed production and the company uses the LIFO inventory flow assumption, the net operating income reported under variable costing generally will be:

Which of the following may appear on a flexible budget performance report? A. All of the above may appear on a flexible budget performance report. B. An unfavorable spending variance. C. An unfavorable activity variance. D. A favorable revenue variance.

How would the following costs be classified (product or period) under variable costing at a retail clothing store? Cost of purchasing clothing Sales commissions A) Product Product B) Product Period C) Period Product D) Period Period

Mossfeet Shoe Corporation is a single product firm. The company is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year? Contribution Margin Ratio Break-even Point A) Increase Decrease B) Decrease Decrease C) Increase No effect D) Decrease No effect

True or False:An unfavorable activity variance for revenue indicates that activity was less than expected when the static planning budget was developed.

True or False:In the merchandise purchases budget, the required purchases (in units) for a period can be determined by subtracting the beginning merchandise inventory (in units) from the budgeted sales (in units) and desired ending merchandise inventory (in units).

Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that:

Which of the following statements is NOT correct concerning the Manufacturing Overhead Budget? (1)The Manufacturing Overhead Budget is prepared after the Sales Budget. (2)The Manufacturing Overhead Budget shows only the variable portion of manufacturing overhead. (3)The Manufacturing Overhead Budget shows the expected cash disbursements for manufacturing overhead. (4)The Manufacturing Overhead Budget provides a schedule of all costs of production other than direct materials and labor costs

True or False:In a production budget, if the number of units in finished goods inventory at the end of the period is less than the number of units in finished goods inventory at the beginning of the period, then the expected number of units sold is less than the number of units to be produced during the period.

True or False:The direct labor budget begins with the required production in units from the production budget.

A budget that is based on the actual activity of a period is known as a:

Which of the following is true of a company that uses absorption costing? Variable selling expenses are included in product costs. Fixed production and fixed selling costs are considered to be product costs. Net operating income fluctuates directly with changes in sales volume. Unit product costs can change as a result of changes in the number of units manufactured.

A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling price per unit will: have no effect on the break-even volume. decrease the contribution margin. have no effect on the contribution margin ratio. decrease the degree of operating leverage.

When unit sales are constant, but the number of units produced fluctuates and everything else remains the same, net operating income under variable costing will: fluctuate in direct proportion to changes in production. fluctuate inversely with changes in production. be greater than net operating income under absorption costing. remain constant.

Which of the following statements is NOT correct concerning the Cash Budget? The Cash Budget should be prepared before the Budgeted Income Statement. It is not necessary to prepare any other budgets before preparing the Cash Budget. The Cash Budget builds on earlier budgets and schedules as well as additional data. The Cash Budget should be prepared before the Budgeted Balance Sheet.

If sales volume increases and all other factors remain constant, then the: contribution margin ratio will increase. margin of safety will increase. net operating income will decrease. break-even point will decrease.

When preparing a direct materials budget, the required purchases of raw materials in units equals:

True or False: The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducting the beginning inventory.

True or False: To help assess how well a manager has controlled costs, actual costs should be compared to what the costs should have been for the actual level of activity.

Which of the following budgets are prepared before the sales budget? Budgeted Income Statement Direct Labor Budget A) Yes Yes B) Yes No C) No Yes D) No No

True or False: When expressed on a per unit basis, fixed costs can mislead decision makers into thinking of them as variable costs.

Which of the following is true regarding the contribution margin ratio of a company that produces only a single product? Multiple Choice A. The contribution margin ratio will decline as unit sales decline. B. The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit. C. As fixed expenses decrease, the contribution margin ratio increases. D. The contribution margin ratio equals the selling price per unit less the variable expense ratio.

If sales volume increases and all other factors remain constant, then the: A. break-even point will decrease. B. contribution margin ratio will increase. C. margin of safety will increase. D. net operating income will decrease.

The impact on net operating income of a small change in sales for a segment is best predicted by using: Multiple Choice the ratio of the segment margin to sales. net sales less segment fixed costs. the segment margin. the contribution margin ratio.

Which of the following costs at a manufacturing company would be treated as a product cost under variable costing? Multiple Choice property taxes on the factory building sales commissions sales manager's salary direct material cost

True or False: When preparing a direct materials budget, beginning inventory for raw materials should be added to production needs, and desired ending inventory should be subtracted to determine the amount of raw materials to be purchased

If a company increases its selling price by $2 per unit due to an increase in its variable labor cost of $2 per unit, the break-even point in units will: Multiple Choice decrease. change but direction cannot be determined. not change. increase.