Accounting true false

The overall CM ratio for a company producing three products may be obtained by adding the contribution margin ratios for the three products and dividing the total by three.

false

An increase in the number of units sold will decrease a company's break even point

false

assuming that the unit contribution margin is positive, a 10% decrease in selling price will increase the break even point in terms of unit sales more than will a 10% increase in the variable expense

true

to facilitate decision making, fixed expenses line will be steeper than the total revenue line

false

on a cvp graph for a profitable company, the total expense line will be steeper than the total revenue line

false

if sales volume increases and all other factors remain unchanged, the contribution margin ratio will decrease

false

to estimate what the profit will be at various levels of activity, a manager can simply take the number of units to be sold over the break even point and multiply that number by the unit contribution margin

true

the break even point is the point where the total contribution margin equals total variable expenses

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

false

the sales budget is usually prepared before the production budget

true

the cash budget is the starting point in preparing the master budget

false

one of the weaknesses of budgets is that they are of little value in uncovering potential bottlenecks in an organization

false

both variable and fixed manufacturing overhead costs are included in the selling and admin expense budget

false

the basic idea behind responsibility accounting is that top management is responsible for preparing detailed budgets by which the performance of middle and lower management will be evaluated.

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 deducted the beginning inventory

true

on a cash budget, the total amount of budgeted cash payments for manufacturing overhead should not include any amounts for depreciation on factory equipment

true

a segment margin is computed by deducting variable and traceable fixed expenses from the sales of a segment

true

only those fixed costs labeled "common" are charged to the individual segments when preparing a segmented income statement

false

those fixed costs that arise because of the existence of the segment and that would disappear if the segment were eliminated are called traceable fixed costs of the segment

true

a company has two divisions, each selling several product lines. if segment reports are prepared at the product line level , the division managers' salaries would be considered as common fixed costs of the product lines

true

the variance that arises whenever the standard hours allowed for the output of a period are different from the denominator activity level that was used to compute the predetermined overhead rate

volume variance

Any cost that differs between alternatives in a decision making situation. This term in synonymous with avoidable cost and relevant cost

differential cost

A budget created at the beginning of the budgeting period that is valid only for the planned level of activity.

static budget

a detailed listing of the standard amounts of inputs that should go into a unit of product, multiplied by the standard price or rate that has been set for each input.

standard cost card

a cost that differs between alternatives in a particular decision. this term is synonymous with avoidable cost and differential cost.

relevant cost

the activity figure used to compute the predetermined overhead rate

denominator activity

any cost that has already been incurred and that cannot be changed by any decision made now or in the future

sunk cost

standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times

ideal standards

a budget that is designed to cover a range of activity and that can be used to develop budgeted costs at any point within that range to compare to actual costs incurred

flexible budgets

the amount of materials that should have been used to complete the period's actual output. it is computed bu multiplying the actual number of units produced by the standard quantity per unit.

standard quantity allowed

a direct material quantity standard generally includes an allowance for waste

true

practical standards allow for normal machine downtime and employee rest periods

true

most companies compute the materials price variance when materials are placed into production

false

an unfavorable labor rate variance can occur if workers with high hourly wage rates are assigned to work on products whose standards assume workers with low hourly wage rates.

true

fixed costs should not be included in a flexible budget since such costs are not likely to be controllable by managers.

false

in a standard cost system, overhead is applied on the basis of the actual level of activity rather than the standard of activity allowed for the output of a period.

false

the volume variance for fixed overhead is an activity related variance based on the difference between the denominator level of activity and the standard level of activity allowed for the output of a period

true

a product that does not cover its allocated share of general corporate administrative expenses should be dropped

false

joint processing after the split off point is profitable if the incremental revenue from such processing exceeds the incremental processing costs

true

when a company has a production constraint, the product with the highest contribution margin per unit of the constrained resource should be given highest priority.

true

the book value of an old machine is always considered a sunk cost in a decision

true

future costs that do not differ between the alternatives in a decision are avoidable costs

true

payment of overtime to a worker in order to relax a production constraint could increase the profits of a company

true

in a decision to drop a product , the product should e charged for rent in proportion to the space it occupies even if the space has no alternative use and the rental payment is unavoidable

false

the activity base for a flexible budget should usually be expressed in unites of activity rather than in dollars

true

a materials price variance is favorable if the actual price exceeds the standard price

false

it is not important that the activity base and overhead costs be causually related when developing a flexible budget

false

a company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor hours. the company's choice of the denominator level of activity has no effect on the fixed portion of the p

false

there can be no volume variance overhead

true

lumber produced in a lumber mill in several different products being produced from each log; such products are called joint products

true

if the price a company paid for overhead items such as utilities, decreased during the year, the company would probably report a:

favorable spending variance

which of the following would produce a labor rate variance ?

use of persons with high hourly wage rates in tasks that call for low hourly wage rates