Exam 1: Cost Accounting: Information for Decision Making

Which of the following statements is false?

(CMA adapted) A costing method that first assigns costs to activities and then assigns them to products based on the products' consumption of those activities is:

Compliance with Sarbanes-Oxley does not mean that the manager has met all of his or her ethical responsibilities.

The continual process of measuring a company's own products, services, or activities against competitors' performance is:

A management method by which the organization seeks to excel on all dimensions of quality is called:

Cost accounting information is commonly used in developing financial accounting information.

The New York Times recently reported that a number of publicly-held corporations have been accused of illegally doctoring hourly employees' time records. Examples included: ? Workers sued Family Dollar and Pep Boys, accusing managers of deleting hours from their time records. ? More than a dozen former Walmart employees said in interviews and depositions that managers had altered time records to shortchange employees. ? The Department of Labor reached two back-pay settlements with Kinko's photocopy centers after finding that managers had erased time for 13 employees. When interviewed, many of the managers cited pressure from upper-management and the impact of their actions on their own compensation as underlying causes for their actions. All of the companies strongly denied encouraging such illegal and unethical behavior by managers. Compensation experts interviewed agreed that the companies' incentive performance systems may have contributed to the managers' behavior. , (New York Times, April 4, 2004) a. Explain how the incentive performance systems of the above-named companies could have contributed to this illegal behavior by managers. b. Discuss the ethical issues involved in the design of incentive performance systems. In designing a performance-based incentive system, what measures should companies take to avoid illegal and unethical behavior by supervisors?

Travon's Limo Service provides transportation services in and around Bentonville. Its profits have been declining, and management is planning to add a package delivery service that is expected to increase revenue by $275,000 per year. The total cost to lease additional delivery vehicles from the local dealer is $60,000 per year. The present manager will continue to supervise all services. However, labor and utilities costs will increase by 40% and rent and other costs will increase by 15% when the package delivery service is added. Travon's Limo Service Annual Income Statement Before Expansion Sales Revenue \ 960,000 Costs: Vehicle leases \ 400,000 Labor 290,000 Utilities 50.000 Rent 100,000 Other Costs 60,000 Manager's Salary 120,000 Total Costs 1,020,000 Operating Profit (Loss) \ (60.000) a. Prepare a report of the differential costs and revenues if the delivery service is added. b. Should management start up the delivery service? Explain your answer.

The goals and objectives of establishing budgeting in an organization include all of the following except:

All of the following words describe benchmarking except:

The Sarbanes-Oxley Act of 2002 requires an effective internal control system for publicly owned firms. Therefore, with regards to strategic investment decisions, it is important that management consider including all of the following except:

Departmental managers at Boswell Department Store are allowed considerable discretion in both sourcing and pricing of products, based on local tastes and competition, as well as being responsible for departmental staffing. Based on the concept of the responsibility center, which of the following would not be a performance measure that would be useful in evaluating the performance of departmental managers at the stores?

Snacking Macs, Inc., currently manufactures three different types of scientifically balanced dog food. The firm is considering eliminating one of the three products. What factors should be taken into account in making this decision?

Accounting systems are important because they are a primary source of information for managers.

San Juan, Inc. is considering two alternatives: A and B. The costs associated with the alternatives are listed below: Alternative A Alternative B Material costs \ 35,000 \ 57,000 Processing costs 36,000 57,000 Building costs 12,00C 28,000 Equipment rental 19,000 19,00C - Are the materials costs and processing costs differential in the choice between alternatives A and B? (Ignore the building costs and equipment rental in this question.)

Financial accounting provides a historical perspective, while cost accounting emphasizes:

In general, if activities that do not add value to the company can be eliminated, then costs associated with them will also be eliminated.

What are characteristics of information used in decision making?

The management of Parachute Corporation is considering dropping product ABC123. Data from the company's accounting system appear below: Sales \ 260,000 Cost of goods sold 125,000 Building expenses 88,000 Selling and administrative expenses 75,000 All building expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $42,000 of the building expenses and $48,000 of the selling and administrative expenses will not be incurred if product ABC123 is discontinued. a. According to the company's accounting system, what are the operating profits earned by product ABC123? b. What would be the impact on the company's overall operating profits if product ABC123 is dropped? Should the product be dropped?

Cost information itself is a product with its own customers.