Deck 19: Controlling Cost and Profit

Question 1

Which of the following is NOT a type of responsibility center?

A) Profit center
B) Investment center
C) Revenue center
D) Cost center

Answer 1

C

Question 2

Standard costs are used to control all of the following costs EXCEPT:

A) Relevant costs
B) Direct labor costs
C) Variable manufacturing overhead costs
D) Direct materials costs

Answer 2

A

Question 3

Responsibility accounting is used in:

A) Cost centers
B) Profit centers
C) Investment centers
D) All of these are correct

Answer 3

D

Question 4

Which of the following may affect the behavior of costs?

A) Production methods
B) Technology
C) Plant layout
D) All of these may affect the behavior of costs

Question 5

In which of the following is a manager responsible for costs and revenues?

A) Responsibility center
B) Cost center
C) Profit center
D) Investment center

Question 6

All of the following are criteria for investigating a variance EXCEPT:

A) Frequency of occurrence
B) Controllability
C) Whether favorable or unfavorable
D) Effect on profitability

Question 7

Centralization refers to the concept of having decision-making authority in the hands of:

A) Segment managers
B) Top management
C) Individual employees
D) Operational managers

Question 8

Goal congruence can be achieved by:

A) Centralizing decisions that benefit the entire company
B) Decentralizing the organization
C) Establishing a system of responsibility accounting
D) Both centralizing decisions that benefit the entire company and establishing a system of responsibility accounting

Question 9

The report which highlights variances from budget is the:

A) Production report
B) Performance report
C) Exception report
D) Cost sheet

Question 10

Standard costs are generally based on:

A) Desired production costs for the period
B) The actual production costs for the period
C) The sales price expected for the period
D) The estimated average production costs for the period

Question 11

In which of the following is a manager responsible for costs, revenues, and assets?

A) Revenue center
B) Cost center
C) Profit center
D) Investment center

Question 12

Which of the following is NOT a benefit of decentralization?

A) More timely decisions can be made
B) Lower-level managers become more involved in strategic planning
C) Managers can be evaluated more accurately
D) Sub-unit managers have incentives to perform well

Question 13

In a responsibility accounting system, which of the following is true?

A) The manager should be involved in the development of the plan over which the manager has control
B) A manager should be held accountable only for the costs, revenues or assets over which the manager has substantial control
C) A manager should be given very little autonomy
D) The manager should be involved in the development of the plan over which the manager has control and should be held accountable for the costs, revenues, or assets over which the manager has substantial control

Question 14

In which of the following is a manager responsible for only costs?

A) Responsibility center
B) Cost center
C) Profit center
D) Investment center

Question 15

Responsibility accounting is the concept that:

A) A firm is responsible for reporting to the public all activities that have a social impact, such as pollution control
B) Each activity within a firm is controlled by a manager who is accountable for costs; costs and revenues; or costs, revenues, and investments, depending on the degree of responsibility assigned
C) A firm should apply generally accepted accounting principles on a basis consistent with preceding years
D) A firm should be objective in accounting and should use historical costs rather than current-value concepts

Question 16

Management by exception uses which of the following?

A) Variances to isolate problem areas
B) Responsibility centers to make managers accountable
C) Decentralization principles to assign management tasks
D) None of these are correct

Question 17

Which type of center is usually found at the lowest levels in a firm?

A) An investment center
B) A revenue center
C) A cost center
D) A profit center

Question 18

A disadvantage to decentralization is:

A) Segment managers do not receive credit for performance
B) There are fewer opportunities for advancement
C) Management decisions may not be within the objectives of the firm
D) Management evaluations are more difficult

Question 19

How can an organization prevent decisions made by a decentralized manager from being inconsistent with the firm's objectives?

A) Have decisions that benefit the entire company be made at the corporate level
B) Develop a system of responsibility accounting
C) Have top management make all decisions
D) Have decisions that benefit the entire company be made at the corporate level and develop a system of responsibility accounting

Question 20

Of the following, which is probably the greatest benefit of centralization?

A) Employee satisfaction and motivation
B) An improved perspective of lower-level managers on unique divisional problems
C) Managerial flexibility
D) Goal congruence among divisions

Question 21

All favorable labor rate variances indicate that:

A) The actual labor rate is less than the standard labor rate
B) The actual labor rate is greater than the standard labor rate
C) Actual hours were greater than standard hours
D) Standard hours were greater than actual hours

Question 22

The labor efficiency variance is the difference between the:

A) Standard labor rate and the actual labor rate multiplied by the actual labor hours
B) Standard labor rate and the actual labor rate multiplied by the standard hours
C) Actual labor hours and the standard labor hours multiplied by the actual labor rate
D) Actual labor hours and the standard labor hours multiplied by the standard rate

Question 23

A materials quantity variance is unfavorable when:

A) Standard quantity is less than actual quantity
B) Actual price is greater than standard price
C) Actual quantity is less than standard quantity
D) Standard price is greater than actual price

Question 24

Sammamish Company utilizes a standard cost system. The standard quantity for production is 10 pounds of material, and the standard price is $3 per pound. The actual quantity was 9 pounds, and the actual price was $3.20 per pound. Given this information, Sammamish would have a(n):

A) Favorable materials price variance and a favorable materials quantity variance
B) Favorable materials price variance and an unfavorable materials quantity variance
C) Unfavorable materials price variance and a favorable materials quantity variance
D) Unfavorable materials price variance and an unfavorable materials quantity variance

Question 25

The difference between standard hours and actual hours multiplied by the standard rate is the:

A) Materials quantity variance
B) Overhead efficiency variance
C) Labor efficiency variance
D) Materials price variance

Question 26

The variance computed by multiplying the difference between the actual and standard quantity of materials by the standard price paid is the:

A) Materials quantity variance
B) Labor rate variance
C) Manufacturing overhead spending variance
D) Materials price variance

Question 27

Exhibit 19-1 The following information relates to Almira's operations for the month of August:
Refer to Exhibit 19-1. Given the information above, the materials price variance is:

A) $8,800 unfavorable
B) $8,800 favorable
C) $24,000 unfavorable
D) $24,000 favorable

Question 28

Exhibit 19-1 The following information relates to Almira's operations for the month of August:
Refer to Exhibit 19-1. Given the information above, the materials quantity variance is:

A) $15,200 unfavorable
B) $15,200 favorable
C) $16,000 unfavorable
D) $16,000 favorable

Question 29

Which of the following is NOT an advantage of standard costing?

A) Standards are reported as specific figures but are treated by managers as ranges of acceptable performance
B) The setting of standard costs requires a careful analysis of operations
C) Standard costs provide a basis for measuring performance by assigning variances to the manager responsible
D) A standard cost system is compatible with the principle of management by exception

Question 30

A favorable labor efficiency variance would occur when the:

A) Actual labor hours are less than the standard labor hours
B) Standard labor hours are less than the actual labor hours
C) Standard labor rate is less than the actual labor rate
D) Actual labor rate is greater than the standard labor rate

Question 31

The labor rate variance is the difference between the:

A) Actual labor hours and the standard labor hours multiplied by the standard labor rate
B) Actual labor rate and the standard labor rate multiplied by standard hours
C) Standard labor rate and the actual labor rate multiplied by the actual labor hours
D) Standard labor rate and the actual labor rate multiplied by the difference in actual labor hours and standard labor costs

Question 32

Which of the following is a true statement?

A) When actual price is greater than expected price, a favorable variance results
B) When expected price is greater than actual price, a favorable variance results
C) When expected price is equal to actual price, a favorable variance results
D) None of these are true statements

Question 33

Which of the following would NOT cause a material quantity variance?

A) Quality defects
B) Poor choice of materials
C) Inexperienced workers
D) Delivery costs

Question 34

Which of the following compares actual inputs at standard prices with standard quantity of inputs at standard prices?

A) Price variance
B) Usage variance
C) Rate variance
D) None of these are correct

Question 35

To prevent quantity variances from being influenced by price changes, which is used?

A) Standard quantity
B) Actual price
C) Standard price
D) None of these are used

Question 36

The difference between the standard price and the actual price multiplied by the actual quantity of materials is the:

A) Materials quantity variance
B) Overhead efficiency variance
C) Overhead spending variance
D) Materials price variance

Question 37

A favorable materials price variance would occur when the:

A) Actual quantity is greater than the standard quantity
B) Standard quantity is greater than the actual quantity
C) Actual price is greater than the standard price
D) Standard price is greater than the actual price

Question 38

Which variance compares actual inputs used at actual and standard prices?

A) Price variance
B) Quantity variance
C) Usage variance
D) None of these are correct

Question 39

The variance computed by multiplying the difference between the actual rate and the standard rate by the actual hours is:

A) The labor rate variance
B) The materials price variance
C) The manufacturing overhead efficiency variance
D) The labor efficiency variance

Question 40

Which of the following is NOT a disadvantage of standard costing?

A) Standard costing must change as conditions change
B) Standard costs are not useful for certain types of businesses
C) The setting of standard costs requires an analysis of cost behavior and a determination of the components of manufacturing overhead costs
D) It is easy to misinterpret the causes of a variance because so many factors are involved

Question 41

A segment margin income statement typically includes all of the following EXCEPT:

A) Controllable costs
B) Direct variable costs
C) Direct fixed costs
D) Opportunity costs

Question 42

Exhibit 19-1 The following information relates to Almira's operations for the month of August:
Refer to Exhibit 19-1. Given the information above, the labor rate variance is:

A) $40,000 unfavorable
B) $40,000 favorable
C) $42,000 unfavorable
D) $42,000 favorable

Question 43

Exhibit 19-1 The following information relates to Almira's operations for the month of August:
Refer to Exhibit 19-1. Given the information above, the labor efficiency variance is:

A) $42,000 unfavorable
B) $42,000 favorable
C) $28,000 unfavorable
D) $28,000 favorable

Question 44

Exhibit 19-2 The following information relates to Bergen Corporation:
Refer to Exhibit 19-2. Based on the information above, the labor efficiency variance is:

A) $1,000 unfavorable
B) $1,000 favorable
C) $800 unfavorable
D) $800 favorable

Question 45

Exhibit 19-2 The following information relates to Bergen Corporation:
Refer to Exhibit 19-2. Based on the information above, the journal entry to record the labor costs and variances for Bergen Corporation would include a debit to:

A) Work-in-process inventory for $48,000
B) Labor rate variance for $885
C) Labor efficiency variance for $800
D) Wages payable for $46,315

Question 46

Exhibit 19-3 The following information relates to Lamb Company:
Refer to Exhibit 19-3. Given the information above, the standard labor cost per unit is:

A) $2,500
B) $3,600
C) $7,200
D) $14,400

Question 47

Exhibit 19-3 The following information relates to Lamb Company:
Refer to Exhibit 19-3. Given the information above, total actual labor costs are:

A) $3,339,270
B) $3,540,843
C) $3,399,980
D) Not able to be determined

Question 48

Profit center managers are most often evaluated on the basis of:

A) A comparison of actual to standard costs
B) Segment margin
C) Return on investment
D) Earnings per share

Question 49

Segment managers are generally NOT concerned with:

A) Controllable costs
B) Variable direct costs
C) Fixed direct costs
D) Indirect costs

Question 50

A responsibility center in which the manager is responsible for only revenues and costs is a(n):

A) Revenue center
B) Cost center
C) Investment center
D) Profit center

Question 51

Exhibit 19-2 The following information relates to Bergen Corporation:
Refer to Exhibit 19-2. Based on the information above, the labor rate variance is:

A) $885 unfavorable
B) $885 favorable
C) $585 unfavorable
D) $585 favorable

Question 52

Exhibit 19-2 The following information relates to Bergen Corporation:
Refer to Exhibit 19-2. Based on the information above, the quantity of direct materials that should have been used is:

A) 7,800 pounds
B) 8,000 pounds
C) 12,000 pounds
D) 12,500 pounds

Question 53

Exhibit 19-2 The following information relates to Bergen Corporation:
Refer to Exhibit 19-2. Based on the information above, the journal entry to record the use of materials and the materials quantity variance would include a debit to:

A) Materials quantity variance for $1,500
B) Work-in-process inventory for $37,500
C) Direct materials inventory for $37,500
D) Cash for $36,000

Question 54

Twin Pines Custom Trim established the standard labor rate as $8.60 and the standard hours as 4 hours per unit. During June, 100 units were manufactured, and 410 actual labor hours were incurred at a rate of $8.50 per hour. The labor efficiency variance is:

A) $86 unfavorable
B) $45 unfavorable
C) $41 favorable
D) $45 unfavorable

Question 55

Exhibit 19-2 The following information relates to Bergen Corporation:
Refer to Exhibit 19-2. Based on the information above, the materials quantity variance is:

A) $500 favorable
B) $500 unfavorable
C) $1,500 favorable
D) $1,500 unfavorable

Question 56

Exhibit 19-2 The following information relates to Bergen Corporation:
Refer to Exhibit 19-2. Based on the information above, the materials price variance for materials actually used is:

A) $500 favorable
B) $500 unfavorable
C) $625 favorable
D) $625 unfavorable

Question 57

Exhibit 19-2 The following information relates to Bergen Corporation:
Refer to Exhibit 19-2. Based on the information above, the journal entry to record the purchase of materials and the materials price variance would include a debit to:

A) Materials price variance for $625
B) Cash for $36,875
C) Direct materials inventory for $37,500
D) Direct materials inventory for $36,875

Question 58

Exhibit 19-3 The following information relates to Lamb Company:
Refer to Exhibit 19-3. Given the information above, the actual labor hours were:

A) 356,040 hours
B) 357,300 hours
C) 362,700 hours
D) 360,000 hours

Question 59

A segment margin income statement is a measure of performance in which type of responsibility center?

A) Cost center
B) Profit center
C) Mail center
D) Investment center

Question 60

Exhibit 19-2 The following information relates to Bergen Corporation:
Refer to Exhibit 19-2. Based on the information above, the number of direct labor hours that should have been used is:

A) 5,900 hours
B) 6,000 hours
C) 6,100 hours
D) 6,200 hours

Question 61

The income a segment is able to earn above a specified minimum return is called:

A) Gross margin
B) Profit margin
C) Net income
D) Residual income

Question 62

Which type of responsibility center would usually be found at the highest level in an organization?

A) Revenue center
B) Investment center
C) Profit center
D) Cost center

Question 63

Return on investment is equal to profit margin:

A) Times asset turnover
B) Divided by asset turnover
C) Plus asset turnover
D) Minus asset turnover

Question 64

Return on investment is a direct function of all the following EXCEPT:

A) Operating income
B) Net sales
C) Average total assets
D) Average inventory

Question 65

Managers with the most costs to control are found:

A) At the lowest level
B) At the middle level
C) At the highest level
D) Not enough information available

Question 66

Which of the following would NOT improve ROI?

A) Decrease costs
B) Decrease assets
C) Increase revenue
D) Increase inventory

Question 67

The type of center that is evaluated on the basis of residual income is a(n):

A) Investment center
B) Profit center
C) Revenue center
D) Cost center

Question 68

Costs that a manager CANNOT control are called:

A) Direct costs
B) Indirect costs
C) Uncontrollable costs
D) Segment costs

Question 69

Exhibit 19-4 The following information relates to St. Jean Industries:
Refer to Exhibit 19-4. Based on the information above, the sales price variance is:

A) $750 unfavorable
B) $750 favorable
C) $270 unfavorable
D) $270 favorable

Question 70

Exhibit 19-4 The following information relates to St. Jean Industries:
Refer to Exhibit 19-4. Based on the information above, the sales volume variance is:

A) $750 unfavorable
B) $750 favorable
C) $225 unfavorable
D) $225 favorable

Question 71

Which of the following will cause the ROI to decrease?

A) Decreasing costs
B) Decreasing sales
C) Decreasing the level of operating assets
D) All of these are correct

Question 72

Which of the following can be evaluated using ROI?

A) Investment center
B) Profit center
C) Cost center
D) None of these are correct

Question 73

Profit margin is equal to:

A) Net income divided by total sales
B) Total sales divided by total assets
C) Total assets divided by total sales
D) Net income divided by total assets

Question 74

Costs that a manager can control are called:

A) Indirect costs
B) Product costs
C) Controllable costs
D) Managed costs

Question 75

Which of the following informs management whether units sold were more or less than expected?

A) Sales price variance
B) Sales volume variance
C) Market share variance
D) Industry volume variance

Question 76

Which of the following will most likely increase the return on investment?

A) Increasing costs
B) Increasing sales
C) Increasing the level of operating assets
D) Decreasing sales

Question 77

When other factors remain constant, an increase in average total assets:

A) Increases the return on investment
B) Decreases the return on investment
C) Does not change the return on investment
D) Does not always have the same effect on total assets

Question 78

An independent subsidiary of a decentralized company would be considered a(n):

A) Cost center
B) Profit center
C) Revenue center
D) Investment center

Question 79

Which of the following informs management whether actual sales prices were higher or lower than expected?

A) Sales price variance
B) Sales volume variance
C) Market share variance
D) Industry volume variance

Question 80

Residual income is equal to:

A) Net income earned above a specified minimum return on assets
B) Net income divided by average total assets
C) Average total assets divided by net sales
D) Net sales divided by net income