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ACC 561 Final Exam.
1. _____ refers to accounting information developed for managers
within an organization.
a. Internal auditing
b. Managerial accounting
c. Financial accounting
d. Tax accounting
2. Ethical accountants are important to society because _____.
a. they pay their taxes
b. the information produced is reliable
c. they will not go to prison and waste taxpayers’ money
d. none of these answers is correct
3. Performance reports _____.
a. are quantitative expressions of action plans
b. provide feedback by comparing results with plans and by highlighting deviations from plans
c. are deviations from a plan
d. ignore areas that are presumed to be running smoothly
4. Output measures of both resources and activities are _____.
a. cost drivers
b. stages of production
c. fixed activities
d. variable activities
5. An accountant may have difficulty classifying costs as fixed or variable because _____.
a. costs may behave in a nonlinear way
b. costs may be affected by more than one cost driver
c. the decision situation may cause the costs to be fixed in the short term
d. all of these answers are correct
6. If the proportions in a sales mix change, the _____.
a. contribution margin per unit increases
b. break even point will remain the same
c. cost volume profit relationship also changes
d. net income will not be altered
7. _____ will decrease a company's break-even point.
a. Reducing its total fixed costs
b. Decreasing contribution margin per unit
c. Increasing variable cost per unit
d. Decreasing the selling price per unit

2. 8. Costs that change abruptly at intervals of activity because the resources and their costs come in indivisible chunks
are called ¬¬¬¬¬_____.
a. mixed costs
b. variable costs
c. fixed costs
d. step costs
9. _____ arise as a result of strategic decisions about the scale and scope of an
organization's activities.
a. Capacity costs
b. Discretionary costs
c. Mixed costs
d. Engineered costs
10. _____ is the first step in estimating or predicting costs as a function of appropriate cost drivers.
a. Cost measurement
b. Cost determination
c. Cost behavior investigation
d. Cost driver identification
11. The process of identifying appropriate cost drivers and their effects on the costs of making a product or providing
a service is called ¬¬¬¬¬_____.
a. cost prediction
b. cost measurement
c. activity analysis
d. budgeting
12. _____ is not a primary purpose of a cost management system.
a. Providing aggregate measures of inventory value and cost of goods sold
b. Providing cost information for strategic management decisions
c. Providing cost information for operational control
d. All of these answers are correct
13. Where a specific product is the cost object, the materials used to manufacture the product
would probably be classified as a(n) _____.
a. direct, variable cost
b. direct, fixed cost
c. indirect, variable cost
d. indirect, fixed cost
14. _____ is a name for a system that first accumulates overhead costs for each of the activities of an organization,
and then assigns the costs of activities to the products, services, or other cost objects that caused that activity.
a. Activity based costing
b. Cost driver accounting
c. Transaction based accounting
d. Transaction costing
15. _____ is the process of measuring products, services, and activities against the best levels
of performance.
a. Value-adding
b. Activity-based costing

3. c. Benchmarking
d. Continuous improvement
16. Couch Company can produce either product A or product B. If Couch Company produces product A, expected
direct material cost would be $24,000. If Couch Company produces product B, expected direct material cost would be
$24,000. In choosing between these alternatives, the $24,000 direct material cost is _____.
a. relevant because it is an expected future cost
b. relevant because it is a product cost
c. irrelevant because it is an estimated cost
d. irrelevant because it does not differ between alternatives
17. The choice of the absorption or contribution approach affects the manufacturing cost per unit because the
manufacturing cost per unit is _____.
a. higher if the absorption approach is used
b. higher if the contribution approach is used
c. the same regardless of the approach
d. independent of the approach
18. The product strategy in which companies first determine the price at which they can sell a new product and then
design a product that can be produced at a low enough cost to provide an adequate profit margin is referred to as
_____.
a. full costing
b. target costing
c. predatory pricing
d. discriminatory pricing
19. Jack Bowers has paid off the mortgage on his house and continues to live in the house. The interest income
forgone by not selling the house and investing the proceeds is an example of a(n) _____.
a. sunk cost
b. detrimental cost
c. opportunity cost
d. outlay cost
20. _____ would be a consideration in a make-or-buy decision.
a. Excess capacity
b. Variable factory overhead
c. Rental income from unused facilities
d. All of these answers are correct
21. In deciding whether to add or delete a product, service, or department, the salary of the plant manager is an
_____.
a. avoidable fixed cost
b. avoidable variable cost
c. unavoidable fixed cost
d. unavoidable variable cost
22. Depreciation is _____.
a. the periodic cost of equipment spread over the future periods in which
the equipment is expected to be used
b. the decline in equipment value due to obsolescence
c. the difference between the original cost and current market value

4. d. All of these answers are correct
23. Past costs that are unavoidable and unchangeable are known as _____ costs.
a. fixed overhead
b. operating
c. product production
d. sunk
24. A major benefit of effective budgeting is that _____.
a. it compels managers to think ahead
b. it aids managers in communicating objectives to units
c. it provides benchmarks to evaluate subsequent performance
d. all of these answers are correct
25. A sales forecast is _____.
a. a prediction of sales under a given set of conditions
b. the result of decisions to create conditions
c. the same as a sales budget that will generate a desired level of sales
d. all of these answers are correct
26. Which of the following is not a major benefit of budgeting?
a. Budgeting compels managers to think ahead.
b. Budgeting provides definite expectations that are the best framework for judging subsequent performance.
c. Budgeting aids managers in coordinating their efforts so the objectives of the organization as a whole match the
objectives of its parts.
d. Budgeting allows managers to operate day-to-day, reacting to current events rather than planning for the future.
27. Preparing the master budget begins by establishing _____.
a. a targeted balance sheet
b. a targeted income statement
c. the expected cash
d. the expected sales
28. Financial planning models _____.
a. focus on the budgeted balance sheet
b. allow managers to assess the predicted impacts of various alternatives before final decisions are selected
c. attempt to answer “How come?” questions
d. are extremely accurate, thus lessening the need for management judgment
29. A variance is the difference between _____.
a. a budgeted amount and a benchmark amount
b. the required number of inputs for the number of outputs
c. an actual result and a budgeted amount
d. a budgeted amount and a stan¬dard amount
30. Efficiency is indicated by _____.
a. sales-activity variances
b. static-budget variances
c. flexible-budget variances
d. all of these answers are correct
31. Flexible budgets help to measure the _____.
a. differences between projected and actual activity levels

5. b. efficiency of operations at the actual activity level
c. amount by which standard quantity and expected prices differ
d. reasons why projected activity levels were not attained
32. Identify which of the following statements about "perfection standards" is true.
a. It is generally believed that they have a negative influence on employee morale.
b. They are expressions of the most efficient performance possible.
c. They usually result in unfavorable variances.
d. All of these answers are correct.
33. Identify which of the following is not a characteristic of a management control system.
a. A management control system aids and coordinates the process of making decisions.
b. A management control system encourages short term profitability.
c. A management control system motivates individuals throughout the organization to act in concert.
d. A management control system coordinates forecasting sales and cost driver activities, budgeting, and measuring
and evaluating performance.
34. Identify which of the following statements regarding responsibility centers is false.
a. Responsibility centers usually have one objective.
b. Management control systems monitor responsibility center objectives.
c. Responsibility centers are usually classified according to their financial responsibility.
d. Cost centers, profit centers, and investments centers are all examples of responsibility centers.
35. A management control system must _____ to achieve maximum benefits at minimum cost.
a. look at the short term only
b. motivate managers with quarterly bonuses based on performance
c. foster goal congruence and managerial effort
d. be the same as the financial accounting system
36. An uncontrollable cost _____.
a. should be ignored in evaluating the responsibility center manager's performance
b. is influenced by a manager's decisions and actions
c. tells a great deal about a manager’s decision-making abilities
d. is the same as a sunk cost
37. Improvements in the production process are examples of _____cost.
a. prevention
b. appraisal
c. internal failure
d. external failure
38. Identify which of the following statements is a benefit of decentralization.
a. Top level managers have the best information concerning local conditions.
b. Managers acquire decision making ability and other management skills that help them move upward in the
organization, assuring continuity of leadership.
c. Managers make decisions that enhance their segment’s performance.
d. Managers save time dealing with managers from other segments regarding transfer prices.
39. Reciprocal services are services provided by a service department to _____.
a. a producing department
b. another service department
c. external customers

6. d. all of these answers are correct.
40. Costs are accumulated in traditional and ABC systems by _____.
a. activities and organizational units, respectively
b. organizational units and activities, respectively
c. activities and activities, respectively
d. organizational units and organizational units, respectively
41. _____ is not a cost driver representing an “ability to bear” philosophy.
a. Revenue of each division
b. Cost of goods sold by each division
c. Total cost before central cost allocation in later division
d. Usage
42. _____ is least likely to be a cost driver as a basis for applying overhead costs.
a. Direct-labor cost
b. Indirect labor hours
c. Machine hours
d. Production setups
43. The excess of actual overhead over the overhead applied to products is called _____.
a. overapplied overhead
b. underapplied overhead
c. overestimated overhead
d. prorated overhead
44. _____ is (are) used for external reporting.
a. Absorption costing
b. Variable costing
c. Direct costing
d. Absorption costing and variable costing
45. The fixed overhead rate is computed as_____.
a. budgeted fixed manufacturing overhead / expected volume of production
b. actual fixed manufacturing overhead / actual volume of production
c. budgeted fixed manufacturing overhead / actual volume of production
d. actual fixed manufacturing overhead / expected volume of production
46. The _____ discloses the economic resources of the organization and the claims
against these resources.
a. balance sheet
b. income statement
c. statement of cash flows
d. statement of retained earnings
47. Identify which one of the following statements is false.
a. Owners’ equity solely represents the profits made by an organization in the current period.
b. Assets are economic resources that are expected to benefit future cash inflows or reduce future cash outflows.
c. Liabilities are economic obligations or claims against the assets of an organization by outsiders.
d. Assets must always equal the sum of liabilities and owners’ equity.
48. The accrual basis of accounting recognizes the impact of transactions on the financial statements in the period
when _____.

7. a. revenues are earned and expenses are incurred
b. cash is received or disbursed
c. the transaction occurs
d. the accounting equation is decreased
49. Cash collected from the customers before goods are delivered is known as_____.
a. unearned revenue
b. deferred revenue
c. advances from customers
d. all of these answers are correct
50. The _____ is (are) largely responsible for developing generally accepted accounting principles in the United
States.
a. FASB
b. IASC
c. SEC
d. FASB and IASC
51. The _____ would result in an increase in income under the cash basis but not an increase in income under the
accrual basis.
a. credit sale of inventory at a sales price in excess of the inventory's cost
b. cash collection from a credit customer
c. cash sale of inventory at a sales price in excess of the inventory's cost
d. return of defective inventory purchased on account to a supplier where a full credit was given
52. _____ is reported on the financial statements of publicly held companies in the
United States.
a. The current ratio
b. Earnings per share
c. The price-earnings ratio
d. All of these answers are correct
PROBLEMS:
1. Christina is considering leaving her current position to open a music store. Christina’s current salary is $45,000.
Annual music store revenue and costs are estimated at $250,000 and $210,000, respectively. If Christina decides to
open the music store, the change in her annual income would be _____.
a. $85,000
b. ($5,000)
c. $250,000
d. $40,000
($250,000 - $210,000) - $45,000 = ($5,000)
2. Deadwood Hospital has overall variable costs of 50% of total revenues and fixed costs of $40 million per year.
There are 40,000 patient-days estimated for next year. The break-even point expressed in total revenue is _____.
a. $80 million
b. $40 million
c. $10 million
d. none of these answers is correct
$40 million / (1 - 0.50) = $80 million
3. The following information is for Kinsner Corporation:

8. Total fixed costs $313,500
Variable costs per unit $99
Selling price per unit $154
If management has a targeted net income of $46,200 (ignore income taxes), then the number of units that must be
sold is _____.
a. 2,036 units
b. 2,336 units
c. 5,700 units
d. 6,540 units
($313,500 + $46,200) / ($154 - $99) = 6,540 units
4. Illinois Company reported the following information about the production and sales of its only product during its first
month of operations:
Sales ($225 per unit) $405,000
Direct materials used $176,000
Direct labor $100,000
Variable factory overhead $44,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Ending inventories:
Direct materials -0-
WIP -0-
Finished goods 400 units
The cost of goods sold under variable costing is_____.
a. $320,000
b. $360,000
c. $288,000
d. $272,000
($176,000 + $100,000 + $44,000) / 2,000 = $160 per unit;
$405,000 / $225 = 1,800 units sold;
1,800 x $160 = $288,000
5. Florida Company's overhead cost information is given below:
Standard applied overhead $210,000
Budgeted overhead based on standard machine hours allowed $230,000
Budgeted overhead based on actual machine hours used $215,000
Actual overhead $200,000
Required:
a. Compute the total overhead variance.
b. Calculate the flexible budget variance
c. Determine the production volume variance.
a.$200,000 - $210,000 = $10,000 favorable
b.$200,000 - $230,000 = $30,000 favorable
c.$230,000 - $210,000 = $20,000 unfavorable
6. Alabama Company's overhead cost information is given below:

9. Standard applied overhead $322,000
Budgeted overhead based on standard machine hours allowed $332,000
Budgeted overhead based on actual machine hours used $310,000
Actual overhead $346,000
Required:
a. Compute the total overhead variance.
b. Calculate the flexible budget variance.
c. Determine the production volume variance.
a.$346,000 - $322,000 = $24,000 unfavorable
b.$346,000 - $332,000 = $14,000 unfavorable
c.$332,000 - $322,000 = $10,000 unfavorable