Exam 5: Accounting for Inventory

According to the IMA, the term used to describe a situation where an input was used specifically to obtain a particular output, in a way that can be verified, is "responsiveness."

A company that sets its standard costs, assuming that production will normally occur under close to ideal conditions, is said to be using "achievable" standards.

In general, a manager using the payback method to decide between two projects would pick the project with the longer payback period.

A disadvantage of the accounting rate of return method of evaluating capital investments is that it ignores the timing of when cash inflows occur.

The type of cost relationship that exists when costs do not vary, regardless of the level of a cost driver (within some relevant range of output), is

A likely advantage of a participatory budget process (compared to a top-down budget process) is

The net present value of a potential investment will normally decrease when the required discount rate increases.

According to the IMA, "capacity" means the potential for a resource to do work.

Gao Corp. produced 2,000,000 units this year, at a variable cost of $3 per unit. Its fixed costs are $1,200,000 per year. It sold all 2,000,000 units produced at $5 per unit. Its total contribution margin for the year was

Assume that the standard cost to make one unit of product includes 10 units of raw materials at a standard price of $3 per unit. In July, 20,800 units of raw materials that cost $2.96 each were used to produce 2,000 units of finished product. What is the materials quantity variance?

The internal rate of return on an investment is the discount rate that makes the present value of future cash flows exactly equal to the initial investment.

Budgets can serve as a means of communicating top management objectives to lower-level managers.

A graph with the amount of some cost driver on the "x" axis and the cost of production on the "y" axis that is a straight line, with an upward slope, starting with $5,000 of costs at zero levels of production, would indicate which type of cost relationship?

One problem of summarizing management accounting data is that summaries may not give managers insight into variations and detailed specific information.

Let AR = actual hourly rate for direct labor, SR = the standard hourly rate, AH = the actual direct labor hours used, and SH = the standard direct labor hours for a given level of production. The direct labor efficiency variance equals

The word that refers to a characteristic of an input that allows for the input (and its costs) to be eliminated as a result of a decision is

Achievable standards are less likely to discourage workers than are tight standards.

When a company is considering discontinuing production of a product, the salvage value of the production machinery would usually be relevant to the decision.

Basile Corp. produced 5,000 units this year. The standard quantity of raw materials per unit was 2 kilograms, and the standard price per kilogram was $3. The company actually used 2.1 kilograms per unit, and paid $3.10 per kilogram. The raw materials price variance was

One difference between long-term and short-term decision situations is that in long-term decision situations, more costs are normally considered fixed.