Chapter 5 Inventory and Production Management

TRUE FALSE
- investment in inventory yields a return when it is sold -In a pull system of production control, inventory is
- value chain can aid in the reduction of non-value produced in anticipation of customer or work center
added activities demand
- Purchases of inventory create a continuous cash -Profit maximization is the major focus of value
outflow engineering
- Efficient inventory management relies largely on cost- -Kaizen costing is most often applied to new products
minimization strategies -In a just-in-time (JIT) environment, design changes
- Fixed factory overhead is typically the production cost may be made at any time during the production
least likely to be minimized in the short run process
-In a push system of production control, inventory is -In a just-in-time (JIT) environment, quality is
produced in anticipation of customer or work center determined at quality control checkpoints in the
demand manufacturing process
- The product life cycle has a significant impact on costs -When a flexible manufacturing system (FMS) is used,
and profits response time to needs of the market is slower than
- Virtual reality has been used increasingly in the under a traditional manufacturing system
product design stage -Economic order quantity (EOQ) is compatible with
- Cost minimization is the major focus of value just-in-time systems
engineering
- Target costing is most frequently used in the
development stage of a product
- In a just-in-time (JIT) environment, the optimal
situation is to have only one vendor for any given item
- In a just-in-time (JIT) environment, design changes
must be made early in the production process
- In a just-in-time (JIT) environment, quality is
determined continually during the manufacturing
process
- In a just-in-time (JIT) environment, machines and
workers are often rearranged into manufacturing cells
- In a just-in-time (JIT) environment, end-of-period
variance analysis and reporting does not occur
-Backflush costing requires fewer allocations
than traditional accounting methods
-When a flexible manufacturing system (FMS) is used,
worker tasks are more diverse than under a traditional
manufacturing system
-Lean manufacturing and just-in-time (JIT) systems are
both concerned with reduction of inventory levels
-Bottlenecks in a production process will cause other
parts of the process to experience idle time
-The EOQ formula can be modified to calculate the
number of units that should be manufactured in a
production run
Chapter 6 Factory Overhead: Departmentalization

TRUE
-Decentralization is a transfer of authority from the top which the buying segment can obtain the good or
to the bottom of an organization service externally
-Decentralization can result in a lack of goal -In computing a transfer price, the minimum price
congruence among departments should be no lower than the incremental costs
-Decentralization can lead to greater job enrichment associated with the goods plus the opportunity cost of
and satisfaction the facilities used
-Decentralization means that a unit manager has the -One of the main factors to consider when using a cost-
authority to make all decisions concerning that specific based transfer price is whether to use actual or
unit standard costs
-A responsibility accounting system should include the -When using a market-based transfer price, a decision
revenues and costs under a division manager’s control must be made which market price to use
-Responsibility reports reflect the flow of information -When using a negotiated transfer price, a
from operational units to top management determination must be made if comparable substitutes
-A manager of a cost center is evaluated solely on the are available externally
basis of how well costs are controlled -Market based transfer prices are most effective for
-When management by exception is employed, both common high-cost and high-volume standardized
favorable and unfavorable variances should be services
investigated -Negotiated transfer prices are most appropriate
-A profit center is typically an independent customized high-volume and high-cost services
organizational unit -Cost based transfer prices are most appropriate for
-The manager of a profit center has the ability to set low cost and low volume services
selling prices -An advance pricing agreement can eliminate the
-The manager of an investment center is responsible possibility of double taxation on multinational
for generating revenue as well as controlling expenses exchanges of goods
-Suboptimization occurs when a manager of a cost
center focuses on the goals of the cost center rather FALSE
than on the goals of the organization as a whole -Decentralization is a transfer of authority from the
-An administrative department provides services that bottom to the top of an organization
benefit the entire organization. -Decentralization increases the time required for
-An service department provides services that benefit decision-making
other internal units of an organization. -Decentralization reduces the need for effective
-The most theoretically correct method of allocating communication among an organization’s departments
service department costs is the algebraic method -Decentralization means that a unit manager has the
-The most straight-forward method of assigning service authority to make all decisions concerning that specific
department costs to revenue-producing areas is the unit
direct method. -A responsibility accounting system should include all
-Transfer prices can be used to promote goal revenues and costs of a division
congruence among operating segments of an -Responsibility reports at lower levels of the
organization organization are less detailed than reports at the
-In computing a transfer price, the maximum price higher levels
-When management by exception is employed,
should be no higher than the lowest market price at
favorable variances should not be investigated
FALSE
The manager of a revenue center has the authority to
establish selling prices of product
-An administrative department provides services that
benefit other internal units of an organization.
-The direct method of service department cost
allocation allows a partial recognition of reciprocal
relationships among service departments before
assigning costs to revenue-producing areas
-In computing a transfer price, the maximum price
should be no higher than the highest market price at
which the buying segment can obtain the good or
service externally.
-When using a negotiated transfer price, a decision
must be made which market price to use.
-When using a market-based transfer price, a decision
must be made how price disputes will be handled
-Cost-based transfer prices are most effective for
common high-cost and high-volume standardized
services
-Market based transfer prices are most appropriate
customized high-volume and high-cost services.
-Negotiated transfer prices are most appropriate for
low cost and low volume services.
Chapter 7 Job Order Costing

TRUE FALSE
-In a normal job order costing system, factory -A company that produces sugar will use a job order
overhead is applied using predetermined rates times costing system to track production costs
actual input -A company that manufactures custom bridal gowns
-A company that produces sugar will use a process will use a process costing system to track costs
costing system to track production costs -A company that manufactures small quantities of
-A company that manufactures custom bridal gowns identifiable products will use a process costing system
will use a job order costing system to track production -A company that manufactures large quantities of
costs homogenous goods will use a job order costing system.
-A company that manufactures small quantities of -Cost flows and physical flows of units are identical.
identifiable products will use a job order costing -In an actual job-order costing system, factory
system overhead is assigned to a job continuously during the
-A company that manufactures large quantities of production process.
homogenous goods will use a process costing system -In a normal job order costing system, actual factory
-In an actual job order costing system, factory overhead is applied at the end of the period
overhead is assigned to a job on a periodic basis. -In a normal job order costing system, factory
-In a standard job order costing system, factory overhead is applied using actual rates times actual
overhead is applied using predetermined rates times input
standard input -In a standard job order costing system, factory
In a job order costing system, costs are accumulated overhead is applied using actual rates times standard
for each individual job input
-When raw materials are placed into production, the -When raw materials are placed into production, the
materials inventory account is debited materials inventory account is debited
-When manufacturing overhead is charged to a job, the -When manufacturing overhead is charged to a job, the
work in process account is debited manufacturing overhead account is debited
-Standards can be computed for materials, labor, and -When indirect labor is applied to a job in process, the
overhead manufacturing overhead account is debited
-Standards can be used in a job order costing system if -When indirect labor is recorded for a job in process,
the products manufactured are similar in nature the work in process account is debited
-Overapplied factory overhead that is immaterial in -Overapplied factory overhead that is material in
amount is closed to cost of good sold at year end amount is closed to cost of good sold at year end
-Overapplied overhead that is material in amount is -Standards can be used in a job order costing system if
allocated between Finished Goods Inventory, Work in the products manufactured are varied in nature
Process, and Cost of Goods Sold at year end -If a normal loss is anticipated on all jobs, the overhead
-If a normal loss is anticipated on a specific job, the application rate should include an amount for the cost
overhead application rate should include an amount of defective units less disposal value
for the cost of defective units less disposal value -Normal spoilage is considered a period cost
-Abnormal spoilage is considered a period cost -The journal entry to record normal spoilage
-The journal entry to record normal spoilage specifically identified with a particular job includes a
specifically identified with a particular job includes a debit to Work in Process
credit to Work in Process -Spoilage occurring on specific jobs should be
considered in computing predetermined factory
overhead rates
Chapter 11 Standard Costing and Variances

TRUE
-Specifications for materials are compiled on a bill of -A budget variance is a controllable variance
materials -An overhead efficiency variance is related entirely to
-An operations flow document shows all processes variable overhead
necessary to manufacture one unit of a product -Unfavorable variances are represented by debit
-A standard cost card is prepared after manufacturing balances in the overhead account
standards have been developed for direct materials, -Favorable variances are represented by credit
direct labor, and factory overhead balances in the overhead account.
-The total variance does not provide useful information -Practical standards are the most effective standards
about the source of cost differences for controlling and motivating workers
-The formula for price/rate variance is (AP - SP) x AQ -Ideal standards do not allow for normal operating
-The price variance reflects the difference between the delays or human limitations.
price paid for inputs and the standard price for those -Expected standards generally yield favorable variances
inputs -Ideal standards generally yield unfavorable variances
-The usage variance reflects the difference between -Total quality management (TQM) and just-in-time (JIT)
the quantity of inputs used and the standard quantity production systems are based on the premise of ideal
allowed for the output of a period production standards
-The formula for usage variance is (AQ - SQ) * SP -In a totally automated organization, using theoretical
-The point of purchase model calculates the materials capacity will generally provide the lowest fixed
price variance using the quantity of materials overhead application rate
purchased -A conversion variance combines labor and overhead
-The difference between the actual wages paid to variances
employees and the standard wages for all hours -The effect of substituting a non-standard mix of
worked is the labor rate variance materials during the production process is referred to
-The difference between the standard hours worked as a material mix variance
for a specific level of production and the actual hours -When multiple labor categories are used, the financial
worked is the labor efficiency variance effect of using a different mix of workers in a
-A flexible budget is an effective tool for budgeting production process is referred to as a labor mix
factory overhead variance
-The difference between actual variable overhead and -When multiple labor categories are used, the
budgeted variable overhead based upon actual hours is monetary impact of using a higher or lower number of
referred to as the variable overhead spending variance hours than a standard allows is referred to as a labor
-The difference between budgeted variable overhead yield variance
for actual hours and standard overhead is the variable
overhead efficiency variance
-The difference between actual and budgeted fixed
factory overhead is referred to as a fixed overhead
spending variance
-The difference between budgeted and applied fixed
factory overhead is referred to as a fixed overhead
volume variance
-A fixed overhead volume variance is a noncontrollable
variance
-A one-variance approach calculates only a total
overhead variance
Chapter 11 Standard Costing and Variances

FALSE
-Expected standards are a valuable tool for motivation
-Specifications for materials are compiled on a
purchase requisition. and control
-A standard cost card is prepared before developing -Ideal standards are an effective means of controlling
manufacturing standards for direct materials, direct variances and motivating workers
-Expected standards generally yield unfavorable
labor, and factory overhead
-The total variance can provide useful information variances
about the source of cost differences -Ideal standards generally yield favorable variances
-The formula for price/rate variance is (AP - SP) x SQ -In a totally automated organization, using theoretical
capacity will generally provide the highest fixed
-The price variance reflects the difference between the
quantity of inputs used and the standard quantity overhead application rate
allowed for the output of a period -The effect of substituting a non-standard mix of
-The usage variance reflects the difference between materials during the production process is referred to
the price paid for inputs and the standard price for as a material yield variance
those inputs -When multiple labor categories are used, the financial
effect of using a different mix of workers in a
-The formula for usage variance is (AQ - SQ) * AP
-The point of purchase model calculates the materials production process is referred to as a labor yield
price variance using the quantity of materials used in variance
production
-The difference between the actual wages paid to
employees and the standard wages for all hours
worked is the labor efficiency variance
-The difference between the standard hours worked
for a specific level of production and the actual hours
worked is the labor rate variance
-The difference between actual variable overhead and
budgeted variable overhead based upon actual hours is
referred to as the variable overhead efficiency variance
-The difference between budgeted variable overhead
for actual hours and standard overhead is the variable
overhead spending variance
-The difference between actual and budgeted fixed
factory overhead is referred to as a fixed overhead
volume variance
-A fixed overhead volume variance is a controllable
variance
-Managers have no ability to control the budget
variance
-Unfavorable variances are represented by credit
balances in the overhead account
-Favorable variances are represented by debit balances
in the overhead account
-Favorable variances are always desirable for
production