Which type of cost changes in total, in direct proportion to changes in activity level?

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1.     Variable costs are costs that vary in total in direct proportion to changes in the activity level.True

False

2.     Variable costs are costs that vary on a per-unit basis with changes in the activity level.

True

False

3.     Direct materials and direct labor costs are examples of variable costs of production.

True

False

4.     Total variable costs change as the level of activity changes.

True

False

5.     Unit variable cost does not change as the number of units of activity changes.

True

False

6.     A mixed cost has characteristics of both variable and fixed costs.

True

False

7.     Rental charges of $40,000 per year plus $3 for each machine hour over 18,000 hours are an example of a fixed cost.

True

False

8.     If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 40%.

True

False

9.     If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 60%.

True

False

10.  The dollars available from each unit of sales to cover fixed cost and profit are the unit variable cost.

True

False

11.  If employees accept a wage contract that increases the unit contribution margin, the break-even point will decrease.

True

False

12.  If yearly insurance premiums are increased, this change in fixed costs will result in an increase in the break-even point.

True

False

13.  If the property tax rates are increased, this change in fixed costs will result in a decrease in the break-even point.

True

False

14.  Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the profit-volume chart.

True

False

15.  Even if a business sells six products, it is possible to estimate the break-even point.

True

False

16.  The adoption of variable costing for managerial decision making is based on the premise that fixed factory overhead costs are related to productive capacity of the manufacturing plant and are normally not affected by the number of units produced.

True

False

17.  Assuming no other changes, operating income will be the same under both the variable and absorption costing methods when the number of units manufactured equals the number of units sold.

True

False

18. Which of the graphs in Figure 21-1 illustrates the nature of a mixed cost?

Image transcription text

Graph 1 Graph 2 Total units produced Total units produced Graph 3 Graph 4 Total units produced Total units produced Figure 21-1

a. Graph 4

b. Graph 3

c. Graph 2

d. Graph 1

19.  In an absorption costing income statement, the manufacturing margin is the excess of sales over the variable cost of goods sold.

True

False

20.  If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety is 25%.

True

False

21.  A low operating leverage is normal for highly automated industries.

True

False

22. Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service?

a. number of trucks in service

b. total miles driven

c. number of packages picked up

d. number of truck drivers

23. Which of the following activity bases would be the most appropriate for food costs of a hospital?

a. number of MRIs taken

b. quantity of prescriptions filled

c. number of patients who stay in the hospital

d. number of nurses scheduled to work

24. Costs that vary in total in direct proportion to changes in an activity level are called

a. sunk costs

b. differential costs

c. variable costs

d. fixed costs

25. Which of the following describes the behavior of a variable cost per unit?

a. varies in direct proportion with the activity level

b. remains constant with changes in the activity level

c. varies in decreasing proportion with changes in the activity level

d. varies in increasing proportion with changes in the activity level

26. The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called zero-based budgeting.

True

False

27. The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called continuous budgeting.

True

False

28. Budgets are prepared in the Accounting Department and monitored by various department managers.

True

False

29. Once a static budget has been determined, it is changed regularly as the underlying activity changes.

True

False

30. Flexible budgeting requires all levels of management to start from zero and estimate sales, production, and other operating data as though operations were being started for the first time.

True

False

31. The first budget to be prepared is usually the sales budget.

True

False

32. The master budget of a small manufacturer would normally include all component budgets that impact on the financial statements.

True

False

33. The master budget of a small manufacturer would normally include all necessary component budgets except the budgeted balance sheet.

True

False

34. The master budget of a small manufacturer would normally include all necessary component budgets except the capital expenditures budget.

True

False

35. The first budget to be prepared is usually the production budget.

True

False

36. If Division Inc. expects to sell 200,000 units in the current year, desires ending inventory of 24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted volume of production for the year is 198,000 units.

True

False

37. If Division Inc. expects to sell 200,000 units in the current year, desires ending inventory of 24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted volume of production for the year is 202,000 units.

True

False

38. The budgeted volume of production is normally computed as the sum of (1) the expected sales volume and (2) the desired ending inventory.

True

False

39. The budgeted volume of production is based on the sum of (1) the expected sales volume and (2) the desired ending inventory, less (3) the estimated beginning inventory.

True

False

40. After the sales budget is prepared, the capital expenditures budget is normally prepared next.

True

False

41. The cash budget presents the expected inflow and outflow of cash for a specified period of time.

True

False

42. The cash budget is affected by the sales budget, the various budgets for manufacturing costs and operating expenses, and the capital expenditures budget.

True

False

43. The cash budget summarizes future plans for acquisition of fixed assets.

True

False

44. The capital expenditures budget details future plans for acquisition of fixed assets.

True

False

45. When management seeks to achieve personal departmental objectives that may work to the detriment of the entire company, the manager is experiencing

a. padding

b. budgetary slack

c. cushions

d. goal conflict

46. Budgeting supports the planning process by encouraging all of the following activities except

a. requiring all organizational units to establish their goals for the upcoming period

b. improving overall decision making by considering all viewpoints, options, and cost-reduction possibilities

c. directing and coordinating operations during the period

d. increasing the motivation of managers and employees by providing agreed-upon expectations

47. The budget process involves doing all of the following except

a. periodically comparing actual results with the goals

b. executing plans to achieve the goals

c. establishing specific goals

d. dismissing all managers who fail to achieve operational goals specified in the budget

48. A formal written statement of management's plans for the future, expressed in financial terms, is a

a. budget

b. gross profit report

c. responsibility report

d. performance report

49. The capital expenditures budget is part of the planned investing activities of a company.

True

False

50. Budgets need to be fair and attainable for employees to consider the budget important in their normal daily activities. Which of the following is not considered a human behavior problem?

a. allowing employees the opportunity to be a part of the budget process

b. setting goals among managers that conflict with one another

c. allowing goals to be so low that employees develop a "spend it or lose it" attitude

d. setting goals too tightly making it difficult to meet performance expectations