Deck 16: Managing Costs and Uncertainty

Question 1

Maintaining excessive cash may reduce firm profitability because of low returns on cash investments.

Answer 1

True

Question 2

Accelerating inventory turnover will increase an organization's levels of cash.

Answer 2

True

Question 3

An organization's bond rating may cause the organization to hold larger levels of cash than are necessary for operations.

Answer 3

True

Question 4

A flexible budget compares actual costs to budgeted costs at several activity levels.

Question 5

When a CPA firm uses taped lectures rather than live presentations for continuing education,it is engaging in a cost reduction strategy.

Question 6

The value of discretionary costs is often measured using non-monetary measures.

Question 7

Supply chain management can reduce the processing time for an organization to obtain raw materials.

Question 8

A coefficient of determination has a value between -1 and +1.

Question 9

The higher an organization's capital costs,the greater the opportunity cost of holding idle cash.

Question 10

For cost control purposes,actual costs should be compared to prior period costs.

Question 11

Cost control should be viewed as a short-term process.

Question 12

Property taxes on an organization's plant building are considered as committed costs.

Question 13

A coefficient of determination has a value between 0 and +1.

Question 14

Effective cost control begins in the planning stage of the management cycle.

Question 15

Engineered costs may be either variable or fixed.

Question 16

Research and development expenses are normally considered to be discretionary costs.

Question 17

When budgeting for discretionary costs,less is always better.

Question 18

Depreciation of fixed assets is considered to be a discretionary cost.

Question 19

Increasing the discount period on accounts receivable will increase an organization's cash levels.

Question 20

The benefits of discretionary costs are usually measurable in monetary terms.

Question 21

Increases in per unit variable costs and total fixed costs should be minimized through the process of ________________________________.

Question 22

Spending levels in prior years are often the basis of

A)traditional budgets.
B)zero-base budgets.
C)variance targets.
D)engineered cost analyses.

Question 23

When the organizational output is difficult to define,management may rely on ____ for cost control.

A)qualitative measures
B)program budgeting
C)surrogate measures of output
D)all of the above

Question 24

The use of options and forward contracts to manage price risk is referred to as ___________________.

Question 25

Current assets minus current liabilities equals ___________________________.

Question 26

Lowering existing costs of producing a good or service is referred to as ___________________.

Question 27

Setting organizational goals and objectives and preparing a budget are aspects of control

A)during an event.
B)before an event.
C)after an event.
D)before,during,and after an event.

Question 28

The portion of variance in a dependent variable explained by an independent variable is referred to as the _________________________________________.

Question 29

All of the following are explanations of cost changes.Which of these influences can be substantially affected by cost containment measures?

A)inflation/deflation
B)changes in quantities purchased
C)technological change
D)changes in supply chain costs

Question 30

Costs that have been found to bear observable and known relationships to a quantifiable activity base are referred to as __________________________________.

Question 31

A logical structure of activities designed to analyze and evaluate management of expenditures is a cost

A)consciousness system.
B)understanding system.
C)avoidance system.
D)control system.

Question 32

A cost that must be reviewed periodically to determine if it is still appropriate and necessary is referred to as a __________________________________________.

Question 33

Minimizing period-by-period increases in unit variable costs and total fixed costs defines efforts of cost

A)control.
B)avoidance.
C)containment.
D)reduction.

Question 34

Having sufficient cash to pay liabilities as they become due is referred to as an organization's ________________________.

Question 35

Costs that are necessary to sustain an organization's operations are referred to as ____________________________.

Question 36

As the economy becomes more and more depressed,a company's management decides to slash spending on research and development.What is the likely effect of this action on net income? Net income will be

A)higher this period and lower in future periods.
B)higher this period and higher in future periods.
C)lower this period and higher in future periods.
D)lower this period and lower in future periods.

Question 37

Which of the following does not create a specific price level change?

A)change in production technology
B)change in the rate of inflation
C)changes due to supply and demand
D)changes in the number of competing suppliers

Question 38

For cost control purposes,actual costs should be compared to

A)the original budget.
B)actual costs for the prior period.
C)a flexible budget.
D)a static budget.

Question 39

Cost containment practices by a firm would not be effective for cost increases caused by

A)inflation.
B)a reduction in the quantity of an input purchased.
C)normal seasonality.
D)a reduction in the number of suppliers.

Question 40

Finding acceptable alternatives to higher cost items or not spending money for goods and services is referred to as ________________________________.

Question 41

Which of the following is not a factor that directly affects the budget for a discretionary cost?

A)the importance of the activity to the achievement of the organization's goals
B)last period's budget
C)the expected level of operations
D)managerial negotiations in the budgeting process

Question 42

If an actual discretionary cost is exactly equal to the budgeted level of that cost,which of the following statements is true?

A)Funds were appropriately spent.
B)The discretionary activity was efficient.
C)The discretionary activity was effective.
D)None of the above.

Question 43

Discretionary activities in an organization are determined based on

A)organizational policies and managerial preferences.
B)the budgeted amount from the prior period.
C)the level of long-term investment.
D)an organization's internal control.

Question 44

Careful analysis of the capital budget is an important control activity for

A)variable costs.
B)discretionary costs.
C)committed costs.
D)period costs.

Question 45

A company would be reducing its discretionary costs if it

A)fired a production supervisor.
B)closed its research and development department.
C)successfully negotiated a reduction in its factory rent.
D)reduced its direct labor costs by hiring temporary workers.

Question 46

If a cost can be reduced to zero in the short run without significantly harming the organization,the cost is a

A)variable cost.
B)committed cost.
C)discretionary cost.
D)product cost.

Question 47

A committed fixed cost can

A)never be eliminated.
B)be eliminated in the short term and in the long term.
C)be eliminated in the long term but not in the short term.
D)be eliminated in the short term but not in the long term.

Question 48

Which of the following is least likely to be a discretionary cost?

A)salaries of salespeople
B)advertising
C)maintenance
D)insurance

Question 49

Discretionary costs are often difficult to control because

A)it is difficult to measure the cost.
B)they cannot be changed in the short run.
C)they cannot be changed from period to period.
D)it is difficult to measure the benefits of discretionary activities.

Question 50

The greatest degree of control for committed fixed costs is exerted

A)in the post-investment audit.
B)during the life of the investment.
C)prior to acquisition.
D)by equipment operators.

Question 51

Which of the following is an example of a committed fixed cost?

A)investment in production facilities
B)advertising
C)preventive maintenance
D)employee training programs

Question 52

The term "discretionary costs" refers to

A)costs that management decides to incur in the current period to enable the company to achieve objectives other than the filling of orders placed by customers.
B)costs that are likely to respond to the amount of attention devoted to them by a specified manager.
C)costs that are governed mainly by past decisions that established the present levels of operating and organizational capacity and that only change slowly in response to small changes in capacity.
D)amortization of costs that were capitalized in previous periods.

Question 53

Which of the following is likely to be a discretionary cost in most organizations?

A)managerial training programs
B)managerial labor costs
C)factory utilities
D)factory rent

Question 54

For cost control purposes,fixed costs are classified as

A)product or period costs.
B)discretionary or committed.
C)direct or common.
D)sunk or avoidable.

Question 55

Avoidable costs are usually

A)committed.
B)common.
C)discretionary.
D)joint.

Question 56

The term "committed costs" refers to costs that

A)management decides to incur in the current period to enable the company to achieve objectives other than the filling of orders placed by customers.
B)are likely to respond to the amount of attention devoted to them by a specified manager.
C)are governed mainly by past decisions that established the present levels of operating and organizational capacity and that only change slowly in response to small changes in capacity.
D)fluctuate in total in response to small changes in the rate of utilization of capacity.

Question 57

An effective control system functions before,during,and after an event.However,little control is possible during the event for most

A)variable manufacturing costs.
B)variable period costs.
C)discretionary fixed costs.
D)committed fixed costs.

Question 58

Most discretionary costs relate to

A)plant and equipment acquisitions.
B)long-term investments.
C)basic personnel costs.
D)service activities.

Question 59

If a discretionary cost can be treated like an engineered cost,cost control may be achieved through the use of

A)program budgeting.
B)zero-base budgeting.
C)capital budgeting.
D)flexible budgeting.

Question 60

The level of discretionary costs

A)are set by management for one period at a time.
B)cannot be changed in the short run.
C)are determined when capital investment is undertaken.
D)always varies with sales.

Question 61

An organization plans to produce and sell 50,000 units.It actually produces and sells 45,000 units.Total costs would be expected to be below the planned level due to cost

A)consciousness.
B)control.
C)reductions.
D)behavior.

Question 62

Acme Corporation has a sales goal of $500,000 for the coming year.Based on this level of activity,Acme budgets its total expenses at $450,000.Actual sales are $480,000 and actual costs are $460,000.Acme Corporation's operations were

A)both efficient and effective.
B)neither efficient nor effective.
C)efficient but not effective.
D)effective but not efficient.

Question 63

If a firm is successful in meeting its output goal for a period,the firm has been

A)efficient.
B)effective.
C)profitable.
D)exercising cost containment measures.

Question 64

Control of engineered costs is frequently achieved through the use of

A)zero-base budgeting.
B)program budgeting.
C)standards.
D)cash budgeting.

Question 65

Clarkson Company The following information is provided for Clarkson Company for the month of September:
Refer to Clarkson Company.What is the efficiency variance?

A)$4,450 F
B)$4,450 U
C)$1,000 F
D)$1,000 U

Question 66

Usually,with respect to a variable cost,optimal control is exerted when the cost

A)can be controlled prior to incurrence.
B)is compared to its budget amount.
C)increases steadily over time.
D)is closely monitored.

Question 67

A major difference between committed and discretionary fixed costs is that

A)incurring committed fixed costs is less risky than using discretionary costs.
B)managers are usually responsible for committed fixed costs but not for discretionary fixed costs.
C)incurring discretionary fixed costs rather than committed fixed costs gives a company more flexibility in controlling costs.
D)companies are using more discretionary fixed costs because labor is easier to "remove" than technology.

Question 68

The distinction between avoidable and unavoidable costs is similar to the distinction between

A)variable costs and fixed costs.
B)variable costs and mixed costs.
C)step-variable costs and fixed costs.
D)discretionary costs and committed costs.

Question 69

A ratio of outputs to inputs is a(n)

A)effectiveness measure.
B)efficiency measure.
C)qualitative measure.
D)cost reduction measure.

Question 70

A cost that is found to bear an observable and known relationship to a quantifiable activity base is a(n)

A)discretionary cost.
B)product cost.
C)period cost.
D)engineered cost.

Question 71

A reasonable measure of efficiency relies on

A)qualitative measures of inputs and outputs.
B)a match of inputs in one period with outputs in subsequent periods.
C)a causal relationship between inputs and outputs.
D)a ratio of planned output to actual output.

Question 72

The difference between actual sales and budgeted sales is

A)a flexible budget variance.
B)an efficiency measure.
C)required in program budgeting.
D)an effectiveness measure.

Question 73

Clarkson Company The following information is provided for Clarkson Company for the month of September:
Refer to Clarkson Company.What is the price variance?

A)$4,450 F
B)$4,450 U
C)$1,000 F
D)$1,000 U

Question 74

If economic activity slows down,total costs could easily decline in which of the following categories?

A)variable costs and committed fixed costs
B)variable costs and discretionary fixed costs
C)variable costs only
D)committed fixed costs only

Question 75

A small manufacturing company recently stated its sales goal for a period was $100,000.At this level of activity,its budgeted expenses were $80,000.Its actual sales were $100,000,but its actual expenses were $85,000.This company operated

A)effectively and efficiently.
B)neither effectively nor efficiently.
C)effectively but not efficiently.
D)efficiently but not effectively.

Question 76

Which kind of costs could be eliminated by closing a sales office?

A)yes yes no
B)yes no yes
C)yes no no
D)no no yes

Question 77

Assume actual output exceeds the level of output in the original budget.You would expect costs in which of the following categories to exceed the original budget?

A)total variable costs
B)committed fixed costs
C)discretionary fixed costs
D)all of the above

Question 78

The maximum allowable expenditure is the

A)appropriation.
B)allowance.
C)allocation.
D)committed fixed cost.

Question 79

Clarkson Company The following information is provided for Clarkson Company for the month of September:
Refer to Clarkson Company.What is the fixed spending variance?

A)$590 U
B)$590 F
C)$190 F
D)$190 U

Question 80

A variance represents the difference between a budgeted and an actual cost.Thus,the variance measures

A)only controllable cost differences.
B)only uncontrollable cost differences.
C)both uncontrollable and controllable cost differences.
D)the effectiveness of management.