Quiz 2

1. A field of accounting that provides economic and financial information for

managers and other internal user is called:

A. Managerial accounting
B. Financial accounting
C. Cost accounting
D. Auditing

Cost accounting is a form of managerial accounting that aims to capture a company's

total cost of production by assessing the variable costs of each step of production as
well as fixed costs

An audit is an "independent examination of financial information of any entity,

whether profit oriented or not, irrespective of its size or legal form when such an
examination is conducted with a view to express an opinion thereon

2. Involves the measuring, recording, and reporting of product costs. From the
data accumulated, companies determine both the total cost and the unit cost of
each product.

A. Managerial accounting
B. Financial accounting
C. Cost accounting
D. Management services

3. As a result of the Sarbanes-Oxley Act of 2002, managerial accounting

reports must now comply with generally accepted accounting principles
(GAAP).
A.True
B. False
False. SOX clarifies top management’s responsibility for the company’s
financial statements. In addition, top managers must certify that the company
maintains an adequate system of internal control to safeguard the company’s
assets and ensure accurate financial reports.

4. Manufacturing consists of activities and processes that convert raw

materials into finished goods.Manufacturing costs are typically classified into
Direct Materials, Direct Labor and Manufacturing Overhead.
A. True
B. False

Direct Materials
To obtain the materials that will be converted into the finished product, the
manufacturer purchases raw materials. Raw materials are the basic materials
and parts used in the manufacturing process. For example, auto manufacturers
such as General Motors, Ford, and Toyota use steel, plastic, and tires as raw
materials in making cars.
Raw materials that can be physically and directly associated with the finished
product during the manufacturing process are direct materials. Examples
include flour in the baking of bread, syrup in the bottling of soft drinks, and
steel in the making of automobiles. Direct materials for Hewlett-Packard and
Dell Computer (in the Feature Story) include plastic, glass, hard drives, and
processing chips.

Direct Labor
The work of factory employees that can be physically and directly associated
with converting raw materials into finished goods is direct labor. Bottlers at
Coca-Cola are employees whose activities are usually classified as direct
labor.

Manufacturing overhead consists of costs that are indirectly associated with

the manufacture of the finished product. These costs may also be
manufacturing costs that cannot be classified as direct materials or direct
labor. Manufacturing overhead includes indirect materials, indirect labor,
depreciation on factory buildings and machines, insurance and taxes.

Indirect materials have one of two characteristics: (1) They do not physically
become part of the finished product (such as lubricants and polishing
compounds). Or, (2) they cannot be traced because their physical association
with the finished product is too small in terms of cost (such as lock washers).
Companies account for indirect materials as part of manufacturing
overhead.

Indirect labor refers to the work of employees that has no physical

association with the finished product, or for which it is impractical to trace
costs to the goods produced. Examples include wages of maintenance people,
timekeepers and supervisors. Like indirect materials, companies classify
indirect labor as manufacturing overhead.
5. Raw materials that can be physically and directly associated with the finished
product during the manufacturing process are called:
A. Direct Materials
B. Indirect Materials
C. Variable Cost
D. Manufacturing Overhead

6. The work of factory employees that can be physically and directly

associated with converting raw materials into finished goods is called:

A. Direct Labor
B. Indirect Labor
C. Variable Cost
D. Manufacturing Overhead

7. A costs that are matched with the revenue of a specific time period rather
than included as part of the cost of a salable product. These are non
manufacturing costs which includes selling and administrative expenses.

A. Period Cost
B. Product Cost
C. Fixed Cost
D. Variable Cost

Period costs are costs that are matched with the revenue of a specific time
period rather than included as part of the cost of a salable product. These are
nonmanufacturing costs. Period costs include selling and administrative
expenses. In order to determine net income, companies deduct these costs
from revenues in the period in which they are incurred.
Each of the manufacturing cost components direct materials, direct labor, and
manufacturing overhead are product costs. As the term suggests, product costs
are costs that are a necessary and integral part of producing the finished product.
Companies record product costs, when incurred, as inventory. Under the matching
principle, these costs do not become expenses until the company sells the
finished goods inventory. At that point, the company records the expense as cost
of goods sold.
8. A report that provides details on cost elements used in calculating cost of
goods manufactured.
A. Cost of Goods Manufactured
B. Cost of Goods Sold
C. Income Statement
D. None of the above
9. This refers to all activities associated with providing a product or service.

A. Value Chain
B. Production
C. Sales and Marketing
D. Customer Relation

The value chain refers to all activities associated with providing a product or
service. For a manufacturer these include research and development, product
design, acquisition of raw materials, production, sales and marketing, delivery,
customer relations, and subsequent service. Illustration below depicts the value
chain for a manufacturer. In recent years, companies have made huge strides in
analyzing all stages of the value chain in an effort to improve productivity and
eliminate waste. Japanese automobile manufacturer Toyota pioneered many of
these innovation.

10. Companies allocate overhead based on each product’s use of activities in

making the product. For example, companies can keep track of their cost of
setting up machines for each batch of a production process. Then companies can
allocate part of the total set-up cost to a particular product based on the number
of set-ups that product required. This type of product costing is called.

A. Job order costing

B. Process costing
C. Hybrid costing
D. Activity based costing

11. Under this type of product costing, the company assigns costs to each job
or to each batch of goods.

A. Job order costing

B. Process costing
C. Hybrid costing
D. Activity based costing
12. This type of product costing applies to manufactures with a large volume of
similar products.

A. Job order costing

B. Process costing
C. Hybrid costing
D. Activity based costing
13. A performance-measurement approach that uses both financial and non-
financial measures to evaluate all aspects of a company’s operations in an
integrated fashion. The performance measures are linked in a cause and effect
fashion to ensure that they all tie to the company’s overall objectives.

A. Balanced scorecard
B. Theory of Constraints
C. Strategic Audit
D. Total Quality Management

Balanced scorecard is a performance-measurement approach that uses both

financial and non-financial measures, tied to company objectives, to evaluate
a company’s operations in an integrated fashion.

The theory of constraints is a specific approach used to identify and manage

constraints in order to achieve the company’s goals. According to this theory, a
company must continually identify its constraints and find ways to reduce or
eliminate them, where appropriate.

14. A rate based on the relationship between estimated annual overhead costs and
expected annual operating activity, expressed in terms of a common activity
base.
A. Predetermine Overhead rate
B. Underapplied Overhead
C. Overapplied Overhead
D. Fixed Overhead Rate

Overapplied overhead A situation in which overhead assigned to work in

process is greater than the actual overhead incurred.
Underapplied overhead A situation in which overhead assigned to work in
process is less than the actual overhead incurred.
A cost driver is any factor or activity that has a direct cause-effect relationship
with the resources consumed.
15. A study of the effects of changes in costs and volume on a company’s
profits
A. Cost Volume Profit Analysis
B. Break-even Analysis
C. Marginal Analysis
D. Incremental Analysis

16. A key relationship in CVP analysis is the level of activity at which total
revenues equal total costs (both fixed and variable). This is called:

A. Cost Volume Profit Analysis

B. Break-even Analysis
C. Marginal Analysis
D. Incremental Analysis
17. The amount of revenue remaining after deducting variable costs.
A. Contribution Margin
B. Net Revenue
C. Net Profit
D. Residual Income

18. The process used to identify the financial data that change under
alternative courses of action is called:

A. Cost Volume Profit Analysis

B. Break-even Analysis
C. Marginal Analysis
D. Incremental Analysis
19. The selling price that will provide the desired profit on a product
when the seller has the ability to determine the product’s price.
A. Target Selling Price
B. Negotiated Selling Price
C. Transfer Price
D. Cost-based transfer Price

Negotiated transfer price is a transfer price that is determined by the

agreement of the division managers.
Cost-based transfer price is a transfer price that uses as its foundation the costs
incurred by the division producing the goods.
Transfer price is the price used to record the transfer of goods between two
divisions of a company.

20. A formal written statement of management’s plans for a specified future

time period, expressed in financial terms.
A. Budget
B. Proposal
C. Management letter
D. Cash flow statement