Question: Cost AccountMany companies have switched from absorption costing to variablecosting for internal reporting:A) so the denominator level is more accurateB) to reduce the undesirable incentive to build up inventoriesC) to comply with external reporting requirementsD) to increase bonuses for managers

The correct answer is:B) to reduce the undesirable incentive to build up inventories…

Answered: Question: Cost Account Many companies…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 14MCQ

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Continuous improvement is the governing principle of a lean accounting system. Following are several performance measures. Some of these measures would be associated with a traditional standard-costing accounting system, and some would be associated with a lean accounting system. a. Materials price variances b. Cycle time c. Comparison of actual product costs with target costs d. Materials quantity or efficiency variances e. Comparison of actual product costs over time (trend reports) f. Comparison of actual overhead costs, item by item, with the corresponding budgeted costs g. Comparison of product costs with competitors product costs h. Percentage of on-time deliveries i. First-time through j. Reports of value- and non-value-added costs k. Labor efficiency variances l. Days of inventory m. Downtime n. Manufacturing cycle efficiency (MCE) o. Unused (available) capacity variance p. Labor rate variance q. Using a sister plants best practices as a performance standard Required: 1. Classify each measure as lean or traditional (standard costing). If traditional, discuss the measures limitations for a lean environment. If it is a lean measure, describe how the measure supports the objectives of lean manufacturing. 2. Classify the measures into operational (nonfinancial) and financial categories. Explain why operational measures are better for control at the shop level (production floor) than financial measures. Should any financial measures be used at the operational level? 3. Suggest some additional measures that you would like to see added to the list that would be supportive of lean objectives.
Why does a company use a standard costing system? A. to identify variances from actual cost that assist them in maintaining profits B. to identify nonperformers in the workplace C. to identify what vendors are unreliable D. to identify defective materials
Which of the following is not a qualitative decision that should be considered in an outsourcing decision? A. employee morale B. product quality C. company reputation D. relevant costs
The use of fixed costs to extract higher percentage changes in profits as sales activity changes involves a. margin of safety. b. unit contribution margin. c. degree of operating leverage. d. sensitivity analysis. e. variable cost reduction.
When absorption costing is used a. management may be tempted to overproduce in a given period in order to decrease net income. b. for external reporting, variable costing can still be used for internal reporting purposes. c. it facilitates cost-volume-profit analysis. d. and production exceeds sales, absorption costing reports a lower net income than variable costing.
Differential costs represent – Group of answer choices the costs which is shown in the balance sheet but not expensed in the income statement until the sale of the products. The differences in costs among different departments of an organization. the amount of increase or decrease in costs from a particular course of action when compared to its alternatives the difference between controllable costs and non-controllable costs.
1
Absorption costing is:A. a good way to value inventories for the balance sheet.B. used for external reporting purposes.C. less useful than variable costing for management decision making. D. A and B is correct E. A, B and C is correct
7. Which of the following statement is false? Multiple Choice a)The contribution margin income statement format separates costs according to cost behaviour. b)Fixed manufacturing overhead is treated as a period cost under absorption costing method. c)Fixed manufacturing overhead is treated as a product cost under absorption costing method. d)Variable costing method is more useful than absorption costing approach in internal and managerial decision-making. e)The absorption costing approach is used in external financial reporting.
TRUE OR FALSE When absorption costing is used, management may be tempted to overproduce in each period to increase net income.
← Responsibility reports are used for O A. costs that the segment manager cannot control OB. looking at just actual revenues that have incurred OC. looking at just actual costs that have incurred OD. performance evaluations
Firms may choose to use absorption costing or variable costing for external financial reporting purposes. True or False True False

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