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CMA [US ] – Cost Management – Unit 4
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Question 1 of 30
1. Question
1 pointsThe terms direct cost and indirect cost are commonly used in accounting. A particular cost
might be considered a direct cost of a manufacturing department but an indirect cost of the
product produced in the manufacturing department. Classifying a cost as either direct or
indirect depends uponCorrect
Well Done
Incorrect
Answer (C) is correct.
A direct cost can be specifically associated with a single cost object in an
economically feasible way. An indirect cost cannot be specifically
associated with a single cost object. Thus, the specific cost object
influences whether a cost is direct or indirect. For example, a cost might
be directly associated with a single plant. The same cost, however, might
not be directly associated with a particular department in the plant. -
Question 2 of 30
2. Question
1 pointsWhich one of the following best describes direct labor?
Correct
Well Done
Incorrect
Answer (D) is correct.
Direct labor is both a product cost and a prime cost. Product costs are
incurred to produce units of output and are deferred to future periods to
the extent that output is not sold. Prime costs are defined as direct
materials and direct labor. -
Question 3 of 30
3. Question
1 pointsInventoriable costs
Correct
Incorrect
-
Question 4 of 30
4. Question
1 pointsIn cost terminology, conversion costs consist of
Correct
Answer (C) is correct.
Conversion costs consist of direct labor and factory overhead. These are
the costs of converting raw materials into a finished product.Incorrect
Answer (C) is correct.
Conversion costs consist of direct labor and factory overhead. These are
the costs of converting raw materials into a finished product. -
Question 5 of 30
5. Question
1 pointsConversion costs do not include
Correct
Answer (B) is correct.
Conversion costs are necessary to convert raw materials into finished
products. They include all manufacturing costs, for example, direct labor
and factory overhead, other than direct materials.Incorrect
Answer (B) is correct.
Conversion costs are necessary to convert raw materials into finished
products. They include all manufacturing costs, for example, direct labor
and factory overhead, other than direct materials. -
Question 6 of 30
6. Question
1 pointsConversion cost pricing
Correct
Answer (B) is correct.
Conversion costs consist of direct labor and factory overhead, the costs
of converting raw materials into finished goods. Normally, a company
does not consider only conversion costs in making pricing decisions, but
if the customer were to furnish the raw materials, conversion cost pricing
would be appropriateIncorrect
Answer (B) is correct.
Conversion costs consist of direct labor and factory overhead, the costs
of converting raw materials into finished goods. Normally, a company
does not consider only conversion costs in making pricing decisions, but
if the customer were to furnish the raw materials, conversion cost pricing
would be appropriate -
Question 7 of 30
7. Question
1 pointsThe term “prime costs” refers to
Correct
Answer (D) is correct.
Prime costs are raw material costs and direct labor costs.Incorrect
Answer (D) is correct.
Prime costs are raw material costs and direct labor costs. -
Question 8 of 30
8. Question
1 pointsCosts are allocated to cost objects in many ways and for many reasons. Which one of the
following is a purpose of cost allocation?Correct
Answer (B) is correct.
Cost allocation is the process of assigning and reassigning costs to cost
objects. It is used for those costs that cannot be directly associated with a
specific cost object. Cost allocation is often used for purposes of
measuring income and assets for external reporting purposes. Cost
allocation is less meaningful for internal purposes because responsibility
accounting systems emphasize controllability, a process often ignored in
cost allocation.Incorrect
Answer (B) is correct.
Cost allocation is the process of assigning and reassigning costs to cost
objects. It is used for those costs that cannot be directly associated with a
specific cost object. Cost allocation is often used for purposes of
measuring income and assets for external reporting purposes. Cost
allocation is less meaningful for internal purposes because responsibility
accounting systems emphasize controllability, a process often ignored in
cost allocation. -
Question 9 of 30
9. Question
1 pointsCost drivers are
Correct
Answer (A) is correct.
A cost driver is “a measure of activity, such as direct labor hours,
machine hours, beds occupied, computer time used, flight hours, miles
driven, or contracts, that is a causal factor in the incurrence of cost to an
entity” (IMA). It is a basis used to assign costs to cost objects.Incorrect
Answer (A) is correct.
A cost driver is “a measure of activity, such as direct labor hours,
machine hours, beds occupied, computer time used, flight hours, miles
driven, or contracts, that is a causal factor in the incurrence of cost to an
entity” (IMA). It is a basis used to assign costs to cost objects. -
Question 10 of 30
10. Question
1 pointsWhich of the following is a period cost rather than a product cost of a manufacturer?
Correct
Answer (D) is correct.
Materials, labor, and overhead (both fixed and variable) are examples of
product costs. Abnormal spoilage is an example of a period cost.
Abnormal spoilage is not inherent in a production process and should not
be categorized as a product cost. Abnormal spoilage should be charged to
a loss account in the period that detection of the spoilage occurs.Incorrect
Answer (D) is correct.
Materials, labor, and overhead (both fixed and variable) are examples of
product costs. Abnormal spoilage is an example of a period cost.
Abnormal spoilage is not inherent in a production process and should not
be categorized as a product cost. Abnormal spoilage should be charged to
a loss account in the period that detection of the spoilage occurs. -
Question 11 of 30
11. Question
1 pointsDirect labor costs are wages paid to
Machine Factory Corporate
Operators Supervisors Vice-PresidentCorrect
Answer (B) is correct.
Direct labor costs are wages paid to labor that can be specifically
identified with the production of finished goods. Because the wages of a
factory machine operator are identifiable with a finished product, the
wages are a direct labor cost. Because a supervisor’s or vice-president’s
salary is not identifiable with the production of specific finished goods, it
is a part of factory overhead and not a direct labor cost.Incorrect
Answer (B) is correct.
Direct labor costs are wages paid to labor that can be specifically
identified with the production of finished goods. Because the wages of a
factory machine operator are identifiable with a finished product, the
wages are a direct labor cost. Because a supervisor’s or vice-president’s
salary is not identifiable with the production of specific finished goods, it
is a part of factory overhead and not a direct labor cost. -
Question 12 of 30
12. Question
1 points71 Butler Co.’s production costs for July are
Direct materials $120,000
Direct labor 108,000
Factory overhead 6,000
What is the amount of costs traceable to specific products?Correct
Answer (B) is correct.
Product costs can be associated with a specific product. Product costs
include direct materials and direct labor. Factory overhead cannot be
traced to specific products and therefore is allocated to all products
produced. Thus, the amount of costs traceable to specific products in the
production process is $228,000 ($120,000 + $108,000).Incorrect
Answer (B) is correct.
Product costs can be associated with a specific product. Product costs
include direct materials and direct labor. Factory overhead cannot be
traced to specific products and therefore is allocated to all products
produced. Thus, the amount of costs traceable to specific products in the
production process is $228,000 ($120,000 + $108,000). -
Question 13 of 30
13. Question
1 pointsA firm calculates that its annual cost to hold excess goods in order to avoid any chance of
running out of inventory is $50,000. This $50,000 is an example of aCorrect
Answer (C) is correct.
The costs of holding or storing inventory are carrying costs. Examples
include the costs of capital, insurance, warehousing, breakage, and
obsolescence.Incorrect
Answer (C) is correct.
The costs of holding or storing inventory are carrying costs. Examples
include the costs of capital, insurance, warehousing, breakage, and
obsolescence. -
Question 14 of 30
14. Question
1 pointsRoberta Johnson is the manager of Sleep-Well Inn, one of a chain of motels located
throughout the U.S. An example of an operating cost at Sleep-Well that is both direct and
fixed isCorrect
Answer (A) is correct.
Direct costs are ones that can be associated with a particular cost object
in an economically feasible way, that is, they can be traced to that object.
Fixed costs are those that remain unchanged in total over the relevant
range of production. A motel manager’s salary is traceable to the single
location she manages, and it remains fixed over a set period of time
regardless of the number of guests.Incorrect
Answer (A) is correct.
Direct costs are ones that can be associated with a particular cost object
in an economically feasible way, that is, they can be traced to that object.
Fixed costs are those that remain unchanged in total over the relevant
range of production. A motel manager’s salary is traceable to the single
location she manages, and it remains fixed over a set period of time
regardless of the number of guests. -
Question 15 of 30
15. Question
1 pointsManagement accounting differs from financial accounting in that financial accounting is
Correct
Answer (B) is correct. Financial accounting is primarily concerned with historical accounting, i.e., traditional financial statements, and with external financial reporting to creditors and shareholders. Management accounting applies primarily to the planning and control of organizational operations, considers nonquantitative information, and is usually less precise.
Incorrect
Answer (B) is correct. Financial accounting is primarily concerned with historical accounting, i.e., traditional financial statements, and with external financial reporting to creditors and shareholders. Management accounting applies primarily to the planning and control of organizational operations, considers nonquantitative information, and is usually less precise.
-
Question 16 of 30
16. Question
1 pointsUsing absorption costing, fixed manufacturing overhead costs are best described as
Correct
Incorrect
-
Question 17 of 30
17. Question
1 pointsWhich one of the following is least likely to be a reason to adopt a standard cost system?
Correct
Answer (A) is correct.
Setting standards at an ideal level can motivate employees. However, if
the standards are too high, employees may get discouraged. If the
standards are too low, employees will not be competitive or driven.
Setting the correct level of standards is a difficult task, but it can
motivate employees when done correctly.Incorrect
Answer (A) is correct.
Setting standards at an ideal level can motivate employees. However, if
the standards are too high, employees may get discouraged. If the
standards are too low, employees will not be competitive or driven.
Setting the correct level of standards is a difficult task, but it can
motivate employees when done correctly. -
Question 18 of 30
18. Question
1 pointsCorrect
Answer (D) is correct. In both normal and standard costing, immaterial efficiency variances are accounted for as an addition to cost of goods sold.
Incorrect
Answer (D) is correct. In both normal and standard costing, immaterial efficiency variances are accounted for as an addition to cost of goods sold.
-
Question 19 of 30
19. Question
1 pointsCorrect
Answer (A) is correct. A standard-cost system records the product at standard (predetermined) costs and compares expected with actual cost. This comparison allows deviations (variances) from expected results to be identified and investigated. A standard-cost system can be used in job-order, processcosting, and activity-based systems to isolate variances.
Incorrect
Answer (A) is correct. A standard-cost system records the product at standard (predetermined) costs and compares expected with actual cost. This comparison allows deviations (variances) from expected results to be identified and investigated. A standard-cost system can be used in job-order, processcosting, and activity-based systems to isolate variances.
-
Question 20 of 30
20. Question
1 pointsThe term “gross margin” for a manufacturing firm refers to excess of sales over
Correct
Answer (C) is correct. Gross margin or gross profit is the excess of sales over cost of goods sold, calculated on a full absorption basis. Cost of goods sold would include all manufacturing costs, both fixed and variable.
Incorrect
Answer (C) is correct. Gross margin or gross profit is the excess of sales over cost of goods sold, calculated on a full absorption basis. Cost of goods sold would include all manufacturing costs, both fixed and variable.
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Question 21 of 30
21. Question
1 pointsA standard costing system is most often used by a firm in conjunction with
Correct
Answer (D) is correct. A standard cost is an estimate of what a cost should be under normal operating conditions based on accounting and engineering studies. Comparing actual and standard costs permits an evaluation of the effectiveness of managerial performance. Because of the impact of fixed costs in most businesses, a standard costing system is usually not effective unless the company also has a flexible budgeting system. Flexible budgeting uses standard costs to prepare budgets for multiple activity levels.
Incorrect
Answer (D) is correct. A standard cost is an estimate of what a cost should be under normal operating conditions based on accounting and engineering studies. Comparing actual and standard costs permits an evaluation of the effectiveness of managerial performance. Because of the impact of fixed costs in most businesses, a standard costing system is usually not effective unless the company also has a flexible budgeting system. Flexible budgeting uses standard costs to prepare budgets for multiple activity levels.
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Question 22 of 30
22. Question
1 pointsA difference between standard costs used for cost control and budgeted costs
Correct
Answer (B) is correct. Standard costs are predetermined, attainable unit costs. Standard cost systems isolate deviations (variances) of actual from expected costs. One advantage of standard costs is that they facilitate flexible budgeting. Accordingly, standard and budgeted costs should not differ when standards are currently attainable. However, in practice, budgeted (estimated actual) costs may differ from standard costs when operating conditions are not expected to reflect those anticipated when the standards were developed.
Incorrect
Answer (B) is correct. Standard costs are predetermined, attainable unit costs. Standard cost systems isolate deviations (variances) of actual from expected costs. One advantage of standard costs is that they facilitate flexible budgeting. Accordingly, standard and budgeted costs should not differ when standards are currently attainable. However, in practice, budgeted (estimated actual) costs may differ from standard costs when operating conditions are not expected to reflect those anticipated when the standards were developed.
-
Question 23 of 30
23. Question
1 pointsThe difference between the sales price and total variable costs is
Correct
Answer (D) is correct. The contribution margin is calculated by subtracting all variable costs from sales revenue. It represents the portion of sales that is available for covering fixed costs and profit.
Incorrect
Answer (D) is correct. The contribution margin is calculated by subtracting all variable costs from sales revenue. It represents the portion of sales that is available for covering fixed costs and profit.
-
Question 24 of 30
24. Question
1 pointsWhich method of inventory costing treats direct manufacturing costs and manufacturing overhead costs, both variable and fixed, as inventoriable costs?
Correct
Answer (C) is correct. Absorption (full) costing considers all manufacturing costs to be inventoriable as product costs. These costs include variable and fixed manufacturing costs, whether direct or indirect. The alternative to absorption is known as variable (direct) costing
Incorrect
Answer (C) is correct. Absorption (full) costing considers all manufacturing costs to be inventoriable as product costs. These costs include variable and fixed manufacturing costs, whether direct or indirect. The alternative to absorption is known as variable (direct) costing
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Question 25 of 30
25. Question
1 pointsWhich of the following statements is true for a firm that uses variable costing?
Correct
Answer (B) is correct. In a variable costing system, only the variable costs are recorded as product costs. All fixed costs are expensed in the period incurred. Because changes in the relationship between production levels and sales levels do not cause changes in the amount of fixed manufacturing cost expensed, profits more directly follow the trends in sales.
Incorrect
Answer (B) is correct. In a variable costing system, only the variable costs are recorded as product costs. All fixed costs are expensed in the period incurred. Because changes in the relationship between production levels and sales levels do not cause changes in the amount of fixed manufacturing cost expensed, profits more directly follow the trends in sales.
-
Question 26 of 30
26. Question
1 pointsWhich one of the following is least likely to be involved in establishing standard costs for evaluation purposes?
Correct
Answer (C) is correct. A standard cost is an estimate of what a cost should be under normal operating conditions based on studies by accountants and engineers. In addition, line management is usually involved in the setting of standard costs as are quality control personnel. Top management would not be involved because cost estimation is a lower level operating activity. Participation by affected employees in all control systems permits all concerned to understand both performance levels desired and the measurement criteria being applied.
Incorrect
Answer (C) is correct. A standard cost is an estimate of what a cost should be under normal operating conditions based on studies by accountants and engineers. In addition, line management is usually involved in the setting of standard costs as are quality control personnel. Top management would not be involved because cost estimation is a lower level operating activity. Participation by affected employees in all control systems permits all concerned to understand both performance levels desired and the measurement criteria being applied.
-
Question 27 of 30
27. Question
1 pointsIn target costing,
Correct
Answer (A) is correct. Target costing begins with a target price, which is the expected market price given the company’s knowledge of its customers and competitors. Subtracting the unit target profit margin determines the long-term target cost. If this cost is lower than the full cost, the company may need to adopt comprehensive cost-cutting measures. For example, in the furniture industry, certain price points are popular with buyers: a couch might sell better at $400 than at $200 because consumers question the quality of a $200 couch and thus will not buy the lower-priced item. The result is that furniture manufacturers view $400 as the target price of a couch, and the cost must be lower.
Incorrect
Answer (A) is correct. Target costing begins with a target price, which is the expected market price given the company’s knowledge of its customers and competitors. Subtracting the unit target profit margin determines the long-term target cost. If this cost is lower than the full cost, the company may need to adopt comprehensive cost-cutting measures. For example, in the furniture industry, certain price points are popular with buyers: a couch might sell better at $400 than at $200 because consumers question the quality of a $200 couch and thus will not buy the lower-priced item. The result is that furniture manufacturers view $400 as the target price of a couch, and the cost must be lower.
-
Question 28 of 30
28. Question
1 pointsAn accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers is
Correct
Answer (B) is correct. An activity-based costing (ABC) system identifies the causal relationship between the incurrence of cost and the underlying activities that cause those costs. Under an ABC system, costs are applied to products on the basis of resources consumed (drivers)
Incorrect
Answer (B) is correct. An activity-based costing (ABC) system identifies the causal relationship between the incurrence of cost and the underlying activities that cause those costs. Under an ABC system, costs are applied to products on the basis of resources consumed (drivers)
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Question 29 of 30
29. Question
1 pointsWhich one of the following considers the impact of fixed overhead costs?
Correct
Answer (A) is correct. Full absorption costing treats fixed factory overhead costs as product costs. Thus, inventory and cost of goods sold include (absorb) fixed factory overhead.
Incorrect
Answer (A) is correct. Full absorption costing treats fixed factory overhead costs as product costs. Thus, inventory and cost of goods sold include (absorb) fixed factory overhead.
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Question 30 of 30
30. Question
1 pointsWhich one of the following alternatives correctly classifies the business application to the appropriate costing system? Job Costing SystemProcess Costing System
Correct
Answer (D) is correct. A job costing system is used when products differ from one customer to the next, that is, when products are heterogeneous. A process costing system is used when similar products are mass produced on a continuous basis. A print shop, for example, would use a job costing system because each job will be unique. Each customer provides the specifications for the product desired. A beverage manufacturer, however, would use a process costing system because homogeneous units are produced continuously.
Incorrect
Answer (D) is correct. A job costing system is used when products differ from one customer to the next, that is, when products are heterogeneous. A process costing system is used when similar products are mass produced on a continuous basis. A print shop, for example, would use a job costing system because each job will be unique. Each customer provides the specifications for the product desired. A beverage manufacturer, however, would use a process costing system because homogeneous units are produced continuously.