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79. When faced with a potential ethical conflict, the managerial accountant should first consult IMA ethics counsellor. Answer: FALSE 80. IMA's overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Answer: TRUE 81. Integrity...

79. When faced with a potential ethical conflict, the managerial accountant should first consult IMA ethics counsellor. Answer: FALSE 80. IMA's overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Answer: TRUE 81. Integrity is to abstain from engaging in or supporting any activity that might discredit the profession. Answer: TRUE CHAPTER 2: An Introduction to Cost Terms and Purposes 1. A cost object is anything for which a cost measurement is desired. Answer: TRUE 2. Costs are accounted for in two basic stages: assignment followed by accumulation. Answer: FALSE 3. An actual cost is the cost incurred–a historical or past cost. Answer: TRUE 4. Accountants define a cost as the amount of money spent on a resource. Answer: FALSE 5. A cost is a resource sacrificed or forgone to achieve a specific objective. Answer: TRUE 6. Managers use assigned cost information to make decisions and implement them. Answer: TRUE 7. A cost may be direct for one cost object and indirect for another cost object. Answer: TRUE 8. Assigning indirect costs is easier than assigning direct costs. Answer: FALSE 9. Improvements in information-gathering technologies are making it possible to trace more costs as direct. Answer: TRUE 10. The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object. Answer: FALSE 11. A direct cost of one cost object cannot be an indirect cost of another cost object. Answer: FALSE 12. The cost of natural gas used to heat a production facility that makes three products (A, B, and C) would be classified as an indirect cost when the cost object is one of the products (either A, B, or C). Answer: TRUE 13. The broader the cost object definition (i.e., plant versus product), the more confident the manager will be about the accuracy of the direct cost amounts. Answer: TRUE 14. All costs incurred by a company (sacrifice of a resource) are recorded in the accounting system. Answer: FALSE 15. A fixed cost is fixed only in relation to a given wide range of total activity or volume and only for a given time span, usually a particular budget period. Answer: TRUE 16. A cost driver is a variable, such as the level of activity or volume that causally affects costs over a given time span. Answer: TRUE 17. Fixed cost per unit falls with an increase in production volume. Answer: TRUE 18. Variable costs per unit vary with the level of production or sales volume. Answer: FALSE 19. Wood used to manufacture chairs is considered a direct variable cost when the cost object is the chair. Answer: TRUE 20. Cost drivers casually affect total costs of a cost object over a given time span. Answer: TRUE 21. A fixed cost remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume of output produced. Answer: TRUE 22. A lease for a store calls for a base monthly rent of $1,500 up to $10,000 of sales with a possible additional monthly cost of 2% of sales over $10,000. The rent is a fixed cost for the month for a relevant range of zero to $10,000 sales. Answer: TRUE 23. When making decisions for product mix and pricing, the focus should be on total costs and not unit costs. Answer: TRUE 24. Although unit costs are regularly used in financial reports and for making product mix and pricing decisions, managers should think in terms of total costs rather than unit costs for making decisions. Answer: TRUE 25. A unit cost is computed by dividing total cost by the number of units. Answer: TRUE 26. A unit cost is also called an average cost. Answer: TRUE 27. Banks provide services or what some might call "intangible products" to their customers. Answer: TRUE 28. Department stores, such as Macy's and Kohls, are examples of a merchandising company. Answer: TRUE 29. Merchandising companies purchase products and sell them to customers without changing their basic form. Answer: TRUE 30. Manufacturing companies hold only one type of inventory: direct material. Answer: FALSE 31. Manufacturing sector firms normally hold three types of inventory: direct materials inventory, work-in-process inventory, and finished goods inventory. Answer: TRUE 32. Work-in-process inventory are goods partially worked on but not yet completed. Answer: TRUE 33. Direct material costs are the acquisition costs of all materials that eventually become part of the cost object and cannot be traced to the cost object in an economically feasible way. Answer: FALSE 34. Acquisition costs of direct materials include freight-in charges, sales taxes, and custom duties. Answer: TRUE 35. Indirect manufacturing costs include the compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way. Answer: FALSE 36. Direct manufacturing cost labour includes plant rent and salaries paid to plant supervisors. Answer: FALSE 37. Inventoriable costs are reported as a liability on the balance sheet when incurred and expensed on the income statement when the product is sold. Answer: FALSE 38. All manufacturing costs are period costs. Answer: FALSE 39. All costs reported on the income statement of a service-sector company are inventoriable costs. Answer: FALSE 40. Period costs are included in the cost of goods sold. Answer: FALSE 41. Indirect manufacturing costs are also referred to as manufacturing overhead costs or factory overhead costs. Answer: TRUE 42. Operating income is sales revenue minus operating expenses. Answer: FALSE 43. Conversion costs include all direct manufacturing costs and some of the period costs including research and development costs and customer service. Answer: FALSE 44. Designing, marketing, customer services, research and development expenses are all examples of operating costs. Answer: TRUE 45. Since costs that are inventoried are not expensed until the units associated with them are sold, a manager can produce more units than are expected to be sold in a period without reducing a firm's net income. Answer: TRUE  46. Indirect manufacturing costs such as rent, factory supervisor salary, and depreciation on production equipment are always costs of the period in which they are incurred and are not associated with inventories. Answer: FALSE 47. Idle time wages consist of the wages paid to all workers (for both direct labour and indirect labour) in excess of their straight-time wage rates. Answer: FALSE 48. Rework labour time is considered an overhead cost and not a direct labour cost. Answer: TRUE 49. For external reporting purposes, indirect manufacturing costs must be allocated to individual units. Answer: TRUE 50. Overtime premium is normally considered as a component of direct labour. Answer: FALSE 51. If a worker is paid for 40 hours, but is idle for 5 of those 40 hours, the 5 hours of idle time would be considered a component of direct labour. Answer: FALSE 52. Since budgeting is a financial function and mostly an analytical and quantitative exercise, it generally has no impact on human behaviour, motivation and decision making. Answer: FALSE 53. Cost accounting and cost management include calculating various costs, obtaining financial and nonfinancial information, and analysing relevant information for decision making. Answer: TRUE 54. Cost accounting helps to aids managers in formulating strategies, setting prices for products and services and making decisions about the mix of products and services to be offered to customers. Answer: TRUE 55. Management accountants help managers identify what information is relevant and what information is irrelevant that help in decision making. Answer: TRUE CHAPTER 4: JOB COSTING 1. Direct costs are allocated to the cost object using a cost-allocation method. Answer: FALSE 2. A cost object is anything for which a measurement of costs is desired. Answer: TRUE 3. Direct costs of a cost object are costs related to a particular cost object that can be allocated to that cost object in an economically feasible (cost-effective) way. Answer: FALSE 4. The cost-allocation base is a systematic way to link an indirect cost or group of indirect costs to cost objects. Answer: TRUE 5. Cost objects may be jobs, products, or customers. Answer: TRUE 6. When an organization allocated indirect costs to departments by relative size of the budgets, it is based on the criterion of benefits received. Answer: FALSE 7. A company may use job costing to assign costs to different product lines and then use process costing to calculate unit costs within each product line. Answer: TRUE 8. In each period, job costing divides the total cost of producing an identical or similar product produced in batches by the total number of units produced to obtain a per-unit cost. Answer: FALSE 9. Oil refining companies primarily use job costing to estimate costs. Answer: FALSE 10. In a job-costing system the cost object is an individual unit, batch, or lot of a distinct product or service. Answer: TRUE 11. Process costing is used to assign manufacturing costs to unique batches of a product. Answer: FALSE 12. Using job costing would not be appropriate in the shipping industry. Answer: FALSE 13. Whether a company chooses to use either a job or costing system or process costing system depends on the nature of the product or service - whether the products or services are heterogeneous or homogeneous. Answer: TRUE 14. When calculating indirect cost rates, the longer the time period, the greater the influence of seasonal patterns on the amount of costs. Answer: FALSE 15. The actual indirect-cost rate is calculated by dividing actual total indirect costs by the budgeted total quantity of the cost-allocation base. Answer: FALSE 16. If indirect-cost rates were based on actual short-term usage, periods of lower demand would result in lower costs per unit. Answer: FALSE 17. In job costing, only direct costs are used to determine the cost of a job. Answer: FALSE 18. Indirect manufacturing costs should be allocated equally to each job. Answer: FALSE 19. Each cost pool will have one cost-allocation base. Answer: TRUE 20. Companies often use multiple cost-allocation bases to allocate indirect costs because different indirect costs have different cost drivers. Answer: TRUE 21. A materials-requisition record is an example of a source document. Answer: TRUE 22. All costs other than direct materials and direct manufacturing labor are classified as indirect costs. Answer: TRUE 23. To smooth fluctuating levels of output, separate indirect-cost rates should be calculated for each month. Answer: FALSE 24. Grounds-maintenance costs incurred during the summer months will distort indirect- cost rates that are computed monthly. Answer: TRUE 25. One reason for using longer time periods to calculate indirect-cost rates is seasonal cost fluctuations. Answer: TRUE 26. Actual costing helps managers get information earlier and take corrective measures to improve labour efficiency. Answer: FALSE 27. The budgeted indirect cost rate is actual indirect costs divided by budgeted quantity of the cost allocation base. Answer: FALSE 28. Direct costs are traced the same way for actual costing and normal costing. Answer: TRUE 29. Normal costing assigns indirect costs based on an actual indirect-cost rate. Answer: FALSE 30. A budgeted indirect-cost rate is computed for each cost pool using budgeted indirect costs and the budgeted quantity of the cost-allocation base. Answer: TRUE 31. For normal costing, even though the indirect-cost rate is based on actual, indirect costs are allocated to products based on the normal capacity of the cost-allocation base. Answer: FALSE 32. Work-in-Process Control will be decreased (credited) for the amount of direct-labour costs incurred. Answer: FALSE 33. The Cost of Goods Sold account tracks job costs from the time jobs are started until they are completed. Answer: FALSE 34. Purchases of materials are credited to materials control. Answer: FALSE 35. The Salaries Payable Control account has underlying subsidiary ledgers. Answer: TRUE 36. The sum of all entries in underlying subsidiary ledgers equals the total amount in the corresponding general ledger control accounts. Answer: TRUE 37. When manufacturing overhead is allocated to jobs, the Manufacturing Overhead Allocated account is debited. Answer: FALSE 38. Indirect manufacturing costs are credited to Manufacturing Overhead Control. Answer: FALSE 39. When goods are finished, the Finished Goods Control account is debited while the Work-in-Process Control account is credited. Answer: FALSE 40. The ending balance in Work-in-Process Control represents the total costs of all jobs that have NOT yet been completed. Answer: TRUE 41. Direct materials and direct manufacturing labour become a part of work-in-process inventory on the balance sheet because the direct manufacturing labour transforms the direct materials to another asset, work-in-process inventory. Answer: TRUE 42. When goods are sold, the Cost of Goods Sold account is debited while the Finished Goods Control account is credited. Answer: TRUE 43. Overhead costs allocated each month are expected to equal actual overhead costs incurred each month. Answer: FALSE 44. Management wants to prepare a profitability analysis of the company's customers and therefore the most accurate choice of disposing of under allocated or overallocated manufacturing overhead at year-end is the proration based on final balances of work- in-process, finished goods, and cost of goods sold. Answer: FALSE 45. The proration approach to allocating overapplied or underapplied overhead adjusts individual job-cost records. Answer: FALSE 46. The adjusted-allocation rate approach offers the benefit of a costing system that provides overhead cost data during the year so that pricing, budgeting, and interim reporting can occur and a year-end adjustment to manufacturing overhead allocations to individual jobs that are better aligned with actual manufacturing overhead costs that are known at year-end. Answer: TRUE 47. Under the proration approach, the sum of the amounts shown in the subsidiary ledgers will not match the amounts shown in the general ledger because no adjustments from budgeted to actual manufacturing overhead rates are made in the individual job-cost records. Answer: TRUE 48. The actual costs of all individual overhead categories are recorded in the Manufacturing Overhead Control account. Answer: TRUE 49. Proration is the spreading of under allocated or overallocated overhead among ending work in process, finished goods, and costs of goods sold. Answer: TRUE 50. It is appropriate for service organizations such as public accounting firms to use job costing. Answer: TRUE  51. In some variations of normal costing, organizations use budgeted rates to assign direct costs as well as indirect costs to jobs. Answer: TRUE 52. In some service organizations, a variation of normal costing is used to provide timely information during the progression of the year, using budgeted direct labour costs and allocated budgeted overhead. Answer: TRUE CHAPTER 5: Activity-Based Costing and Activity-Based Management 1. Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called activity-based costing. Answer: FALSE 2. Product-cost cross-subsidization is very common when costs are uniformly spread across various products. Answer: TRUE 3. Companies that over cost products risk becoming less effective on pricing and losing market share when competition utilizes more accurate cost systems. Answer: TRUE 4. If companies increase market share in a given product line because their reported costs are less than their actual costs, they will become more profitable in the long run. Answer: FALSE 5. As product diversity and indirect costs increase, it is usually best to switch away from a broad averaging system to an activity-based cost system. Answer: TRUE 6. The risk of peanut-butter costing rises when broad averages are used across multiple products without managers considering the true amounts of resources consumed in the making of each product. Answer: TRUE 7. Increased used of automation, computer integrated manufacturing, and utilization of robots have led to an increase in indirect costs relative to direct costs. Answer: TRUE 8. Modern manufacturing practices have helped reduce overhead costs relative to direct costs as the reliance on support resources such as scheduling, design, and engineering has diminished. Answer: FALSE 9. Indirect labour and distribution costs would most likely be in the same activity-cost pool. Answer: FALSE 10. Managers should look for evidence of cause-and-effect when choosing a cost driver with the driver being the cause and the effect being the cost incurred. Answer: TRUE 11. Identification of a cost-allocation base is not a critical element when using a strategy that will refine a costing system. Answer: FALSE 12. Only indirect costs are included in the cost pools of ABC. Answer: FALSE 13. When allocating the total indirect cost pool to cost pools such as setup costs including depreciation and maintenance costs of setup equipment, wages of setup employees, and allocation of supervisors is called a second-stage allocation. Answer: FALSE 14. In activity based costing systems, limiting cost-allocation bases to only units of output strengthens the cause-and-effect relationship between the cost-allocation base and the costs in a cost pool. Answer: FALSE 15. Activity-based costing attempts to identify the most relevant cause-and-effect relationship for each activity pool without restricting the cost driver to only units of output or variables related to units of output. Answer: TRUE 16. Service-sustaining costs are the costs of activities that managers cannot trace to individual services but that support the organization as a whole. Answer: FALSE 17. Quality-inspection costs is an example of batch-level costs. Answer: TRUE 18. An effective activity-based cost system always ignores facility-sustaining cost drivers. Answer: FALSE 19. Over time, the cost of design activities depends largely on the time designers spend on designing and modifying the product not on the number of products made or the number of batches produced. Answer: TRUE 20. If the separate activities of design, process design, and prototyping are combined into one activity called "design" in an ABC system, management is forming one homogeneous cost pool. Answer: TRUE 21. Distribution can be a cost-driver for a manufacturing company under ABC system. Answer: FALSE 22. ABC systems attempt to trace more costs as indirect costs. Answer: FALSE 23. The cost data produced by an ABC system for either a service or a product are only derived from indirect costs. Answer: FALSE 24. Implementing activity-based costing system involves use of different cost rates for different activities to compute indirect costs of a product. Answer: TRUE 25. Managers consider the accuracy gained by converting from a traditional cost accounting system to the cost of implementation and measurement required by ABC. Answer: TRUE 26. As ABC systems get very detailed and more cost pools are created, more allocations are necessary to calculate activity costs for each cost pool, which increases the chances of misidentifying the costs of different activity cost pools. Answer: TRUE 27. ABC system is likely to provide the most benefits to a company with significant amounts of indirect costs that are allocated using just one or two costs pools and products that make diverse demands on resources. Answer: TRUE 28. For an ABC system to be useful, it must allocate costs from all "links "of the value chain. Answer: FALSE 29. ABC reveals opportunities to reduce costs on nonvalue added activities. Answer: TRUE 30. Activity-based management refers to the use of information derived from ABC analysis to analyse and improve operations. Answer: TRUE 31. Managers implementing ABC systems for the first time always start by analysing budgeted costs to identify activity-cost pools. Answer: FALSE 32. ABC costing systems cannot be used in marketing decisions. Answer: FALSE 33. ABC systems and department costing systems use totally different approaches towards indirect cost allocation and can never be used together. Answer: FALSE 34. Companies often use costing systems that have features of ABC systems but that do not emphasize individual activities. Answer: TRUE 35. Department costing systems always properly recognize how resources are used by products as they require the creation of multiple indirect cost pools. Answer: FALSE 36. ABC systems provide greater insight than traditional systems into the management of indirect costs. Answer: TRUE