ACCT 2301 Final Exam Flashcards
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What would a project's profitability index be if the project has an internal rate of return which is equal to the company's discount rate?

0.0

The present value of an investment is affected by which of the following?

  • The number of time periods (length of the investment)
  • The interest rate
  • The type of investment (annuity versus lump sum)
  • All of the above (correct)

    • In preparing the operating budget, the first step is preparing the

    sales budget

    A favorable direct materials price variance and an unfavorable direct materials quantity variance might indicate which of the following?

    <p>Less expensive, inferior materials requiring more than the standard amount were used in production.</p> Signup and view all the answers

    Using a discount rate of 3%, which of the following is correct for determining the present value of the gift?

    <p>PV = $1300 × (Annuity PV factor, i = 3%, n = 4)</p> Signup and view all the answers

    The type of standard that provides allowances for normal amounts of waste and inefficiency in the production process is referred to as a(n)

    <p>practical standard</p> Signup and view all the answers

    All of the following are responsibility centers except

    <p>equity center</p> Signup and view all the answers

    A performance report compares actual revenue and expenses with _____________ revenues and expenses.

    <p>budgeted</p> Signup and view all the answers

    A product line should NOT be discontinued if the contribution margin lost is

    <p>more than the fixed costs saved.</p> Signup and view all the answers

    Which of the following causes the master budget variance between the amounts in the master budget and the flexible budget of a revenue center?

    <p>The number of units sold differs from planned sales levels</p> Signup and view all the answers

    Which product costing system would be better for custom-order products?

    <p>Job costing system</p> Signup and view all the answers

    Toshiba Corporation makes computer chips. Toshiba Corporation would be classified as a

    <p>manufacturing company.</p> Signup and view all the answers

    Regarding activity-based costing systems, which of the following statements is true?

    <p>ABC costing systems have separate indirect cost allocation rates for each activity.</p> Signup and view all the answers

    Using account analysis, what type of cost is an electric bill that charges a flat monthly fee plus a charge for each kilowatt hour of electricity used?

    <p>Mixed</p> Signup and view all the answers

    Using ________ may cause a manager to reject a project that may be profitable to the company as a whole.

    <p>ROI</p> Signup and view all the answers

    In deciding whether to outsource, managers must consider

    <p>relevant fixed and variable components.</p> Signup and view all the answers

    A favorable direct labor efficiency variance and an unfavorable direct labor rate variance might indicate which of the following?

    <p>Skilled workers using less actual hours than standard, paid at a higher rate per hour than the standard rate.</p> Signup and view all the answers

    In the basic flow of inventory through a manufacturing system, which of the following occurs second in the job costing system?

    <p>Work in process inventory</p> Signup and view all the answers

    By multiplying ________ and then subtracting fixed costs, managers can quickly forecast the operating income.

    <p>projected sales revenue by the contribution margin ratio</p> Signup and view all the answers

    A combined cash budget includes all of the following except

    <p>All of the above are shown on the combined cash budget.</p> Signup and view all the answers

    If the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant, which of the following statements is true?

    <p>The contribution margin increases and the breakeven point decreases.</p> Signup and view all the answers

    Variable costs are described by which of the following statements?

    <p>False</p> Signup and view all the answers

    Which of the following is an example of a period cost when manufacturing products?

    <p>Advertising expense</p> Signup and view all the answers

    All else being equal, a company would choose to invest in a capital asset if which of the following is true?

    <p>If the expected accounting rate of return is greater than the required rate of return.</p> Signup and view all the answers

    In the equation y = $7.20x + $790, 'x' represents

    <p>number of units produced</p> Signup and view all the answers

    Which of the following statements is correct concerning product costs?

    <p>Product costs are expensed in the period the related product is sold.</p> Signup and view all the answers

    How do you calculate allocated manufacturing overhead to a certain job?

    <p>By multiplying the predetermined manufacturing overhead rate by the actual allocation base used by the job.</p> Signup and view all the answers

    Which of the following condition(s) favors using departmental overhead rates in place of a plantwide overhead rate?

    <p>BOTH of the above</p> Signup and view all the answers

    The breakeven point may be defined as the number of units a company must sell to do which of the following?

    <p>Generate a zero profit</p> Signup and view all the answers

    With respect to total fixed costs, which of the following statements is true?

    <p>They will remain the same as production levels change within the relevant range.</p> Signup and view all the answers

    Company A has a higher margin of safety while Company B has a lower margin of safety. Company A would be considered ________ Company B when considering only margin of safety.

    <p>less risky than</p> Signup and view all the answers

    Which of the following is relevant when deciding whether to drive or fly home for semester break?

    <p>ALL of these costs are relevant.</p> Signup and view all the answers

    If manufacturing overhead has been underallocated during the period, then which of the following is true?

    <p>The jobs produced during the period have been undercosted.</p> Signup and view all the answers

    Activity-based costing (ABC) generally causes the least amount of cost distortion among products because indirect costs are allocated to the products based on

    <p>Both A and B are correct.</p> Signup and view all the answers

    Which of the following is a result of cost distortion?

    <p>Overcosting of some products and undercosting of other products.</p> Signup and view all the answers

    Which of the following is not part of the operating budget?

    <p>Cash budget</p> Signup and view all the answers

    A factory janitor's wages would be classified as ________ when determining the cost of a manufactured product.

    <p>an indirect cost</p> Signup and view all the answers

    The following are all methods of analyzing capital investments except

    <p>Regression Analysis.</p> Signup and view all the answers

    A company would consider all of the following in computing the IRR of an investment, except

    <p>depreciation expense on the assets of the project.</p> Signup and view all the answers

    Which of the following is an advantage of the budgeting process?

    <p>Coordinates the activities of the organization.</p> Signup and view all the answers

    Managers should consider all of the following when deciding whether to accept a special order, except

    <p>fixed costs that will not be affected by the order.</p> Signup and view all the answers

    All of the following are advantages of using standard costs and variances except

    <p>the timeliness that occurs when variances are computed once each month.</p> Signup and view all the answers

    What will happen to the net present value (NPV) of a project if the discount rate is increased from 8% to 10%?

    <p>NPV will always decrease.</p> Signup and view all the answers

    Which type of company typically produces its own inventory?

    <p>Manufacturer</p> Signup and view all the answers

    How do fixed costs react in total and on a per unit basis?

    <p>Fixed costs remain constant in total and decrease per unit as production increases.</p> Signup and view all the answers

    An annuity is best described as which of the following statements?

    <p>A stream of equal installments made at equal time intervals.</p> Signup and view all the answers

    Which of the following is a characteristic of a capital asset?

    <p>Both A and B are correct.</p> Signup and view all the answers

    Regarding capital rationing decisions for capital assets, which of the following is true?

    <p>None of the above are true.</p> Signup and view all the answers

    The formula for calculating the accounting rate of return for a capital asset is

    <p>average annual operating income from asset/amount invested in asset.</p> Signup and view all the answers

    The term _________ is best described as 'a stream of equal installments made at equal time intervals.'

    <p>annuities</p> Signup and view all the answers

    Management by exception would dictate that the manager investigate which of the following variances?

    <p>All favorable and unfavorable variances.</p> Signup and view all the answers

    A(n) __________ cost is a cost whose total amount changes in direct proportion to a change in volume.

    <p>variable</p> Signup and view all the answers

    Which of the following represents the total mixed cost equation?

    <p>y = vx + f</p> Signup and view all the answers

    Most companies use __________ when the lower level management develops budgets each year.

    <p>participative budgeting</p> Signup and view all the answers

    Which of the following budgets is the cornerstone of the master budget?

    <p>sales</p> Signup and view all the answers

    The standard cost of direct labor per unit is calculated by

    <p>multiplying the standard quantity of direct labor by the standard price of direct labor.</p> Signup and view all the answers

    Which of the following is relevant when deciding to replace old equipment with new?

    <p>Trade-in value of the old equipment.</p> Signup and view all the answers

    How do you calculate allocated manufacturing overhead to a certain job?

    <p>By multiplying the predetermined manufacturing overhead rate by the actual allocation base used by the job.</p> Signup and view all the answers

    ______________ is designed to meet the needs of internal decision makers.

    <p>Managerial accounting</p> Signup and view all the answers

    Which of the following statements is true?

    <p>Management accounting focuses on relevant data.</p> Signup and view all the answers

    On a CVP graph, the total cost line intersects the total revenue line at which of the following points?

    <p>The breakeven point</p> Signup and view all the answers

    Sales above the breakeven point indicate a _____________ whereas sales below the breakeven point indicate a _____________

    <p>profit; loss</p> Signup and view all the answers

    To find the sales revenue needed to breakeven, the formula used could be

    <p>fixed expenses/contribution margin per unit.</p> Signup and view all the answers

    Managers can quickly forecast the total contribution margin by multiplying the

    <p>projected sales revenue by the contribution margin ratio.</p> Signup and view all the answers

    Which element of the value chain would depreciation on a factory be classified as?

    <p>Production</p> Signup and view all the answers

    Controllable costs include all the following except

    <p>real estate taxes of the corporate headquarters building.</p> Signup and view all the answers

    A cost benchmark is valid only if the standards are

    <p>kept up to date.</p> Signup and view all the answers

    What type of variance results when the actual fixed overhead costs incurred are greater than the budgeted fixed overhead costs?

    <p>Unfavorable fixed overhead budget variance.</p> Signup and view all the answers

    Strategic planning is beneficial because the organization can

    <p>establish long-term goals that extend 5-10 years into the future.</p> Signup and view all the answers

    Which of the following is an example of an industry that would use a process costing rather than a job costing system?

    <p>Pepsi</p> Signup and view all the answers

    If jobs have been under-costed underallocation of manufacturing overhead, then Cost of Goods Sold (COGS) is too low and which of the following corrections must be made?

    <p>Increase COGS for the amount of the underallocation.</p> Signup and view all the answers

    Which of the following does activity-based costing consider to be the fundamental cost object?

    <p>Activities</p> Signup and view all the answers

    Using account analysis, what type of cost are utilities if you are charged $45 for the first 400 kilowatt hours, $100 for 401-600 kilowatt hours, and $165 + or - for 601-900 kilowatt hours?

    <p>Step</p> Signup and view all the answers

    In the equation y = $11.75x + $550, what does $550 represent?

    <p>$550 are the total fixed costs.</p> Signup and view all the answers

    Despite the proliferation of technology, managerial accountants are still needed to provide professional judgment in which of the following areas?

    <p>All of the above activities require professional judgment</p> Signup and view all the answers

    Using product cost information to determine sales prices is an example of

    <p>directing.</p> Signup and view all the answers

    Managers must consider which of the following when pricing a product or service?

    <p>All costs.</p> Signup and view all the answers

    An 'opportunity cost' is best described by which of the following?

    <p>Benefits foregone by choosing a particular alternative course of action.</p> Signup and view all the answers

    The convenience store that is responsible for its own revenues, costs, and is owned by a national convenience store chain may be classified as a(n)

    <p>profit center.</p> Signup and view all the answers

    Management by ____________ is the practice that directs executive attention to large budget variances.

    <p>exception</p> Signup and view all the answers

    Which of the following is used as the equation's numerator when computing the accounting rate of return for a capital asset?

    <p>Average annual operating income from the asset.</p> Signup and view all the answers

    The term is described as a 'formal means of analyzing long-range investment alternatives.'

    <p>capital budgeting</p> Signup and view all the answers

    The _____________ capital budgeting method uses accrual accounting, rather than net cash flows, as a basis for calculations.

    <p>ARR</p> Signup and view all the answers

    Which of the following items would be considered a capital asset?

    <p>Construction of a new store building.</p> Signup and view all the answers

    Which of the following types of companies has raw materials, work in process, and finished goods inventory?

    <p>Manufacturers.</p> Signup and view all the answers

    Which of the following items is not used when calculating the cost of goods manufactured?

    <p>Salesperson salaries.</p> Signup and view all the answers

    Budget committees include all of the following people except

    <p>Shareholder.</p> Signup and view all the answers

    Managers may intentionally build slack into the budget

    <p>to gain the resources they need in the event of budget cuts.</p> Signup and view all the answers

    The unit contribution margin is computed by

    <p>subtracting the variable cost per unit from the sales price per unit.</p> Signup and view all the answers

    A company's margin of safety is computed as

    <p>expected sales - sales at breakeven.</p> Signup and view all the answers

    When deciding whether or not to adopt standard costs and perform variance analysis, management should do which of the following?

    <p>Examine the costs and benefits of a standard costing system.</p> Signup and view all the answers

    How is the fixed overhead budget variance calculated?

    <p>The difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs.</p> Signup and view all the answers

    Which of the following is used as the equation's denominator when computing the accounting rate of return for a capital asset?

    <p>Initial investment amount.</p> Signup and view all the answers

    'A measure of profitability computed by dividing the average annual operating income by the amount of the investment' is best described by which of the following terms?

    <p>Accounting rate of return.</p> Signup and view all the answers

    Which of the following is a weakness of the internal rate of return (IRR)?

    <p>IRR assumes that the cash inflows from the project are immediately reinvested at the internal rate of return.</p> Signup and view all the answers

    The capital budgeting model considers both profitability and the time value of money.

    <p>net present value.</p> Signup and view all the answers

    When management reviews product sales reports to set goals and objectives and then evaluates the results of sales operations against the plan and performance results, which of management's three primary responsibilities is fulfilled?

    <p>Controlling</p> Signup and view all the answers

    Study Notes

    Project Profitability

    • A project's profitability index is 0.0 if its internal rate of return equals the company's discount rate.

    Present Value Factors

    • Present value is influenced by the number of time periods, interest rates, and type of investment (e.g., annuity or lump sum).

    Operating Budget Preparation

    • First step in preparing the operating budget is developing the sales budget.

    Variance Analysis

    • A favorable materials price variance coupled with an unfavorable quantity variance suggests inferior materials were used.

    Present Value Calculation

    • The correct formula for calculating the present value of a future annuity gift is: PV = $1300 × (Annuity PV factor, i = 3%, n = 4).

    Standard Types

    • Practical standards account for normal waste and inefficiency in production processes.

    Responsibility Centers

    • Equity center is not classified as a responsibility center.

    Performance Reporting

    • Performance reports compare actual results against budgeted revenues and expenses.

    Product Line Decisions

    • Discontinuing a product line is not advisable if the lost contribution margin exceeds the fixed costs saved.

    Budget Variance Causes

    • Master budget variances stem from a discrepancy between actual units sold and planned sales levels.

    Costing Systems

    • Job costing is preferable for custom-order products, while process costing is better for standardized production, like that of a manufacturer.

    Activity-Based Costing

    • ABC systems allocate indirect costs using separate rates for each activity.

    Cost Type Classification

    • An electric bill with a flat charge plus variable costs is categorized as a mixed cost.

    Performance Measurement Challenges

    • ROI might discourage managers from accepting profitable projects.

    Outsourcing Decisions

    • Relevant fixed and variable costs should be considered before deciding to outsource production.

    Labor Variance Analysis

    • A favorable direct labor efficiency variance and an unfavorable rate variance indicate skilled labor using fewer hours but at a higher pay rate.

    Inventory Flow in Job Costing

    • In job costing systems, work in process inventory follows raw materials.

    Income Forecasting

    • Operating income can be projected by multiplying projected sales revenue by the contribution margin ratio and subtracting fixed costs.

    Cash Budget Components

    • A combined cash budget includes projected borrowings, repayments, and cash collections/payments but not ending cash balances.

    Variable Costs Impact

    • When variable costs per unit decrease, the contribution margin increases, reducing the breakeven point.

    Cost Classification Insights

    • Variable costs are fixed on a per-unit basis but vary in total.

    Period Cost Examples

    • Advertising expense is considered a period cost in manufacturing.

    Investment Decisions

    • A company invests in a capital asset if the expected accounting rate of return exceeds the required rate of return.

    Equation Representation

    • In the equation y = $7.20x + $790, "x" signifies the number of units produced.

    Treatment of Product Costs

    • Product costs are recognized as expenses in the period the related product is sold.

    Manufacturing Overhead Allocation

    • Allocated manufacturing overhead to a job is calculated using the predetermined rate multiplied by actual allocation metrics used in the job.

    Departmental Overhead Rates

    • Favorable conditions for using departmental overhead rates occur due to significant variations in departmental activities.

    Breakeven Point Definition

    • The breakeven point is defined as the number of units sold to achieve zero profit.

    Fixed Cost Behavior

    • Fixed costs stay consistent in total but decrease per unit as production increases.

    Risk Assessment in Safety Margin

    • A company with a higher margin of safety is seen as less risky compared to one with a smaller margin.

    Relevant Costs in Decision-Making

    • Relevant costs for deciding between driving or flying home include vehicle wear, gas costs, and plane ticket prices.

    Cost Distortion Consequences

    • Underallocation of manufacturing overhead leads to undercosted jobs and its eventual correction requires increasing COGS.

    ABC Costing Advantages

    • ABC minimizes cost distortion by allocating indirect costs based on used activities related to the product.

    Operating Budget Components

    • The cash budget is not included in the operating budget.

    Indirect Cost Classification

    • A factory janitor’s wages are classified as indirect costs in product manufacturing.

    Capital Investment Analysis Methods

    • Regression analysis is not recognized as a method for capital investment evaluation.

    Internal Rate of Return Analysis

    • IRR calculations do not incorporate depreciation expenses.

    Budgeting Advantages

    • The budgeting process helps coordinate actions within an organization.

    Special Order Considerations

    • Fixed costs unaffected by an order should not be included in the decision to accept a special order.

    Standard Costs Benefits

    • One challenge of standard costs is that timing in variance computation can lead to inaccuracies.

    Discount Rate Impact on NPV

    • An increase in the discount rate generally leads to a decrease in net present value (NPV).

    Manufacturer Characteristics

    • Manufacturers typically produce their own inventory.
    • Fixed costs maintain constant totals while reducing per unit costs as production volumes rise.

    Annuity Definition

    • An annuity represents a series of equal payments at regular intervals.

    Capital Asset Characteristics

    • Capital assets usually involve significant expenditures and are utilized over an extended period.

    Capital Rationing Decisions

    • Rational investment choices may involve selecting the opportunity with the highest NPV.

    Accounting Rate of Return Calculation

    • Accounting rate of return is derived from dividing average annual operating income by the investment amount.

    Long-Range Investment Analysis

    • Capital budgeting serves as a formal analysis of long-term investment alternatives.

    Cost of Goods Manufactured Components

    • Salesperson salaries are excluded from calculating the cost of goods manufactured.

    Budget Committee Composition

    • Shareholders are not typically part of budget committees.

    Budget Slack

    • Managers might deliberately create budget slack to secure necessary resources against potential cuts.

    Contribution Margin Calculation

    • The unit contribution margin is calculated by subtracting variable costs from the sales price.

    Margin of Safety Calculation

    • A company's margin of safety equals expected sales minus breakeven sales.

    Standard Costing Considerations

    • The decision to use standard costs requires assessing the associated costs and benefits.

    Fixed Overhead Budget Variance Calculation

    • Calculated by comparing actual fix overhead costs against budgeted amounts.

    Accounting Rate of Return Denominator

    • The initial investment amount is used as the denominator in the accounting rate of return formula.

    Profitability Measure Definition

    • The accounting rate of return measures profitability based on average annual operating income relative to investment.

    IRR Weaknesses

    • A limitation of IRR is the unrealistic assumption that cash inflows are reinvested at the project's IRR.

    Capital Budgeting and Profitability

    • Net Present Value (NPV) analysis considers both time value of money and profitability.

    Management Responsibilities

    • Management's activities related to setting goals, directing operations, and controlling performance represent its core responsibilities.

    Internal Decision-Makers

    • Managers serve as the internal decision-makers of an organization.

    Profit Center Classification

    • A convenience store that manages its revenues and costs but operates under a national chain acts as a profit center.

    Flexible Budget Function

    • A flexible budget adjusts based on different levels of projected sales or production.

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    Prepare for the ACCT 2301 final exam with these flashcards. Cover essential concepts such as profitability index and present value factors affecting investments. Test your understanding of key accounting principles and boost your exam readiness.

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