Test Bank Chapter 3 Operating Processes Planning And Control

Chapter 3

Operating Processes: Planning and Control

MATCHING

1. Match the following terms with the descriptions below.

A. Fixed cost

B. Mixed cost

C. Fixed revenue

D. Mixed revenue

E. Variable cost

F. Variable revenue

G. Revenue behavior

H. Cost behavior

I. Activity driver

J. Relevant range

_____ 1. A revenue that changes in direct proportion to the change in activity

_____ 2. Basis that reflect the consumption or provision of resources

_____ 3. How a cost reacts to change in the level of operating activity

_____ 4. A cost that does not change in total as the amount of activity changes

_____ 5. A cost that varies, but not proportionately, to a change in activity

_____ 6. The span of operating activity that is considered normal for a company

_____ 7. How a revenue reacts to a change in the level of operating activity

_____ 8. A cost that changes in direct proportion to the change in activity

_____ 9. A revenue that changes, but not proportionately, to a change in activity

_____ 10. A revenue that does not change in total as activity changes.

2. Match the following terms with the descriptions below. (Some terms may be used more than once.)

A. Independent variable

B. Dependent variable

C. Relevant range

D. Activity driver

E. Variable cost

_____ 1. X variable

_____ 2. Basis that reflects the consumption or provision of resources

_____ 3. Y Variable

_____ 4. A variable that does not depend on another variable

_____ 5. A cost that changes in direct proportion to an activity

_____ 6. A variable that changes subject to the change in another variable

_____ 7. A span of activity that is normal for a company.

4. Match the following terms with the descriptions below.

A. Bill of lading

B. Cells

C. FOB destination

D. FOB shipping point

E. Machine set-ups

F. Manufacturing overhead

G. Purchase discounts

H. Sales allowances

I. Purchase returns

J. Purchase allowances

K. Direct material

L. Direct labor

_____ 1. Discounts given to unhappy customers by seller (seller books)

_____ 2. Shipping document that describes agreement between business and common

carrier

_____ 3. Manufacturing cost not directly associated with the production of a product

_____ 4. Legal title transfers to customer when goods are received

_____ 5. A group of machines arranged to reduce travel time of product between

machines

____ 6. Crude oil purchased to produce gasoline

_____ 7. Goods return by buyer on buyer's books

_____ 8. Adjustments made to machines in preparation for new production run

_____9. Cost of salaries for workers who actually manufacture the product

_____10. Reduction in price of goods purchased as a result of dissatisfaction by customer

(buyers books)

_____ 11. Legal title transfers when goods leave the seller's place of business

_____ 12. Discount given buyer for paying amount due early

Answers: 1.(H); 2.(A); 3.(F); 4.(C); 5.(B); 6.(K);7.(I); 8.(E) ;9. (L);10.(J);11.(D); 12.(G)

5. Match the following terms with the descriptions below.

A. Fixed cost

B. Mixed cost

C. Fixed revenue

D. Mixed revenue

E. Variable cost

F. Variable revenue

_____ 1. Sales commission paid by company

_____ 2. Rent on manufacturing equipment

_____ 3. Fees charged to customers based on hours spent repairing computer

_____ 4. Retainer (fee) charged by attorney to represent client whether legal work done

or not (from attorney’s perspective)

_____ 5. Supervisor’s salary

_____ 6. One price for first 10,000 kilowatts cost increases for every kilowatt

used after 10,000 kilowatts

_____ 7. Company charges set fee for first 10 hours of service and the $50 per hour

after the ten hours

_____ 8. Material in each unit of product produced.

Answers: 1.(E); 2.(A); 3.(F); 4.(C); 5.(A); 6.(B); 7.(C); 8.(E)

MULTIPLE CHOICE

6. Which of the following is not part of the revenue process?

A) Receive and accept order for goods and services

B) Receive goods and services

C) Receive payments for goods and services rendered

D) Provide customer support

7. Which of the following is part of the revenue process?

A) Provide customer support

B) Pay suppliers for inventory

C) Convert raw material into inventory for sale

D) Order inventory for resale

8. Delivery of goods is associated with which of the following process?

A) Revenue process

B) Expenditure process

C) Conversion process

D) Evaluation process

9. Determining the company's needs for goods and services is associated with which of the following processes?

A) Revenue process

B) Expenditure process

C) Conversion process

D) Evaluation process

10. Manufacturing products is associated with which of the following processes?

A) Revenue process

B) Expenditure process

C) Conversion process

D) Evaluation process

11. Which of the following is not part of the expenditure process?

A) Receiving goods and services

B) Paying suppliers

C) Ordering goods and services

D) Using equipment to manufacture products

12. Which of the following is not part of the conversion process?

A) Machine setups

B) Paying for the raw material used in production

C) Storing the raw material used in production

D) Storing finished manufactured goods until sold

13. Which of the following is part of the conversion process?

A) Storing finished manufactured goods until they are sold

B) Accepting orders for manufactured goods

C) Paying salaries for the sales personnel who sell the product

D) Paying the freight to deliver the product to the customer

14. Determining the credit and payment policies for customers is part of the:

A) Revenue process.

B) Collection process.

C) Expenditure process.

D) Conversion process.

15. Selecting suppliers for a company's goods and services is part of the:

A) revenue process.

B) expenditure process.

C) selection process.

D) conversion process.

16. Which of the following is not information that a company should collect from a customer when it receives an order?

A) Address

B) Inventory ordered

C) Credit information

D) How goods will reach the customer

E) All of the above should be collected.

17. Which of the following would not be collected from the customer when an order is received?

A) Type of inventory ordered

B) Name of common carrier that will deliver the goods

C) Price quoted

D) Delivery date

E) All of the above will be collected.

18. Which of the following would not be collected from the customer when an order is received?

A) Price quoted

B) Amount and type of inventory ordered

C) Seller’s cost of the product

D) Delivery date

E) All of the above will be collected.

19. Decatron, Inc. purchased $76,500 of parts from a vendor who offered credit terms of 3/15, n/45. If Decatron takes advantage of the discount, the amount paid to the vendor (rounded to the nearest dollar) will be:

A) $74,205.

B) $76,500.

C) $76,271.

D) cannot be determined from the information given.

20. Norton Corporation has purchased raw materials from a vendor and was offered credit terms of 2/10, n/30. Which of the following reflects these terms?

1. 20% discount (2/10) if paid within 30 days
2. 2% discount if paid within 10 days
3. 10% discount if paid within 30 days and 2% after 30 days
4. 2% discount if paid between 10 and 30 days

21. Veta Corporation purchased $14,650 in supplies from a vendor offering credit terms of 2/10, n/30. If Veta takes advantage of the discount, the amount paid to the vendor (rounded to the nearest dollar) will be:

A) $14,650.

B) $14,621.

C) $14,357.

D) $13,185.

22. The Banner Company ordered $50,000 of fertilizer from Farmland Industries and was given terms of 2/15 net/60. Which of the following describes how soon the payment must be made in order to receive a discount and the amount of the discount available?

23. The Quinter Corporation ordered material for its manufacturing process with a price of $75,000 and that had terms of 1/10 net/30. What is the lowest amount of cash Quinter will have to pay if it meets the terms of the discount agreement?

A) $67,500

B) $75,000

C) $74,250

D) $52,500

24. A document sent by the purchasing department to order a specific quantity of goods or services is called a:

A) vendor invoice.

B) purchasing report.

C) purchase order.

D) purchase requisition.

25. A sales invoice originates with the:

A) vendor.

B) purchasing department.

C) sales department.

D) accounting department.

26. The purchase order originates with the:

A) vendor.

B) receiving department.

C) purchasing department.

D) manufacturing department needing the goods or services.

27. FOB shipping point indicates that goods in transit belong to the:

A) seller.

B) buyer.

C) common carrier.

D) either the buyer or seller depending upon the terms of the bill of lading

29. Goods shipped from a seller's warehouse on June 10, 2010 arrived at the buyer's warehouse on June 16, 2010. The invoice for the goods arrived at the buyer's accounting department on June 13, 2010 and was paid on June 20, 2010. If the goods were sold FOB destination, the buyer took legal title on:

A) June 20, 2008.

B) June 13, 2008.

C) June 10, 2008.

D) June 16, 2008.

30. Goods shipped from a seller’s warehouse on April 10 using the terms FOB shipping

point. On the way to the buyer’s warehouse the truck hauling the goods wrecked and the

goods were destroyed. Who will get the insurance check covering the loss?

A) The seller.

B) The buyer.

C) The seller and buyer split the loss.

D) The delivery company.

31. Goods shipped from a seller's warehouse on November 10, 2010 arrived at the buyer's

warehouse on November 16, 2010. The invoice for the goods arrived at the buyer's

accounting department on November 13, 2010 and was paid on November 20, 2010. If

the goods were sold FOB shipping point, the buyer took legal title on:

A) November 20, 2010.

B) November 13, 2010.

C) November 10, 2010.

D) November 16, 2010.

32. Shipping terms indicating that legal title passes to the buyer when goods arrive at the buyer's warehouse are:

A) FOB destination.

B) FOB shipping point.

C) FOB shipping invoice.

D) FOB purchase order.

33. The document listing the quantities of materials and parts needed by the production department is referred to as a(n):

A) operations list.

B) bill of lading.

C) production order.

D) materials requisition.

34. Tri-State Corporation ordered materials from Down-State Manufacturing on October 1, 2006. Down-State shipped the materials by rail on October 5 and the railroad notified Tri-State on October 12, that the goods had arrived. Tri-State picked up the materials on October 13. The terms of the sale are FOB shipping point. On what date should Tri-State consider this a purchase?

A) October 1

B) October 5

C) October 12

D) October 13

35. Carmen Corporation ordered materials from Bizet Manufacturing on November 1, 2010, Bizet shipped the materials by barge on November 5 and the barge company notified Carmen on November 22, that the goods had arrived. Carmen picked up the materials on November 23. The terms of the sale are FOB destination. On what date should Carmen consider this a purchase?

A) November 1

B) November 5

C) November 22

D) November 23

36. Y = m(X) is the formula for a(n)

A) activity cost.

B) variable cost.

C) fixed cost.

D) mixed cost.

37. A cost that is constant per unit but varies in total is called a(n):

A) activity cost.

B) variable cost.

C) fixed cost.

D) mixed cost.

38. Which of the following is not a variable cost?

A) Sales commission

B) Material used to produce product

C) Salary of product inspectors

D) Cost of packaging product

39. The formula for a mixed cost is:

A) Y = b

B) Y = m(X)

C) Y = m(X) + b

D) Y = m(X) + b(X)

40. A cost that increases in total but decreases per unit as the cost driver increase is a(n):

A) activity cost .

B) variable cost.

C) fixed cost.

D) mixed cost.

41. The formula for a fixed cost is

A) Y = m(X) + b where m is equal to 0.

B) Y = m(X) + b where m is equal to 1.

C) Y = m(X) + b

D) Y = m(X) + b(X)

42. Which of the following is not a fixed cost?

A) President’s salary

B) Supervisor’s salary

C) Monthly rent of factory equipment

D) Utility cost

43. In linear regression analysis, the dependent variable is:

A) labeled X in the linear equation.

B) referred to as the intercept.

C) the cost driver.

D) the total cost.

44. A linear regression analysis indicated a constant of 6,025.50, an X coefficient of 24.75, and an R-squared of 0.65. The estimated cost when the independent variable is 350 is:

A) $55,386.

B) $14,688.

C) $11,657.

D) $10,629.

45. A linear regression analysis indicated a constant of 895.00, an X coefficient of 125.60, and an R-squared of 0.72. The dollar value of the dependent variable given an independent variable of 275 is

A) $35,435.

B) $35,184.

C) $25,764.

D) $27,555.

46. The variable housekeeping cost per room rental is:

A) $14.36.

B) $10.13.

C) $ 9.06.

D) $ 9.00.

47. The fixed housekeeping cost per month is:

A) $7,750.

B) $7,830.

C) $7,882.

D) $8,813.

48. The estimated total housekeeping cost for a month with 1,400 room rentals is:

A) $22,012.

B) $21,740.

C) $20,350.

D) $15,715.

49. The cost equation is:

A) Y = $4.35X + $1,457.80

B) Y = ($4.35 + $.23)X – $0.76Z

C) $1,457.80 = $4.35X + $0.76Y

D) $4.35Y = ($0.23 + $0.76)X – $1,457.80

50. The cost of operating the concession stand for a month in which the concession services 250 customers is estimated at:

A) $2,792.80.

B) $2,602.80.

C) $2,545.30.

D) $ 627.20.

51. The following is from a linear regression analysis, what is the constant in the cost

equation?

A) $9,500

B) $4,500

C) $2,714

D) $9,980

52. Given the information below from a linear regression what is the X coefficient of the

regression equation?

A) 0.50

B) 3.00

C) 0.75

D) 1.00

53. The "I Can't Believe It's Yogurt" shop sells only yogurt and only in cups. Which of the following would be a variable cost if number of customers is the cost driver?

A) Rent on the shop

B) Wages

C) Spoons

D) Electricity

54. Non Troppo Corporation has the following cost formula: Y = 30(X) + $250,000. If Non Troppo sells 7,000 units, what will its total cost be?

A) $210,000

B) $250,000

C) $460,000

D) Unable to determine from the information given

55. Which of the follow statements is true about a regression's r2?

A) The greater the r2, the greater the relationship between the independent and dependent variable.

B) An r2 that is greater than 1 means that there is more than a 100 percent relationship between the independent and dependent variable.

C) When a r2 has a negative value, the independent variable is inversely related to the dependent variable.

D) When a r2 is less than 1, the greater the inverse relationship between the independent and dependent variables.

56. Which of the following activity bases would be the best cost driver for flour costs for a pizzeria?

A) Number of customers

B) Hours of operation

C) Number of employees

D) Number of pizzas

57. Largo Company's highest and lowest monthly costs during the past year were $108,000 and $72,000, respectively. Activity levels were 5,000 hours and 3,000 hours, respectively. Determine Largo's cost formula.

A) Y = 24.60(X) + 36,000

B) Y = 21.60(X) + 0

C) Y = 18(X) + 18,000

D) Unable to determine from the information given

58. The accounting department at Alaska Enterprises, Inc. is running low on office supplies. The accounting manager has asked you to obtain additional supplies. Describe all the steps necessary to arrange for the acquisition and payment for the supplies. Identify all documents that would be utilized during this process, as well as the person or department that would prepare the document.

59. Contrast the conversion process with the revenue/expenditure process.

60. Define the following terms as they relate to cost behavior, draw their graphical representation, and give an example of each: (1) fixed cost, (2) variable cost, and (3) mixed cost.

61. Describe the effect of an increase in activity, within the relevant range, on variable and fixed cost.

62. Explain why it is inappropriate to calculate the cost of an expected activity (using a cost

formula generated by either the high/low method or linear regression) that is outside the

relevant range of activity.

62. The customer service department at Mall Mart gathered the following data for the first six months of its fiscal year:

Using the high/low estimation method:

a) Determine the cost estimation equation.

b) Estimate the total department costs during a month where 18,500

customers are serviced.

c) Estimate the total department cost during a month where 35,000 customers are

serviced.

63. Using the information above, calculate the cost estimation equation using the high/low

method. If Tempo expects to produce 7,000 units in February what cost should Tempo

budget for?

64. Using regression, determine the cost estimation equation and the R2 for the equation. If Tempo expects to produce 7,000 units in February what cost should Tempo budget for?

65. Explain why the cost estimation ratio of the high/low method differs from the regression method. Explain the role of the R2 when using regression to forecast cost? What will the manufacturing cost be if Tempo wants to produce 18,000 units?

66. Create your own data set that reflects an activity and its related cost. You must explain the basis of the relationship represented by the data.

Required:

Calculate a cost estimation ratio using the high/low method

Calculate a cost estimation ratio and R2 using the regression method.

67. Using the information above, calculate the cost estimation equation using the high/low

method. If Riga expects to produce 8,500 units in February, what cost should Riga

budget for?

68. Using regression determine the cost estimation equation and the R2 for the equation. If Riga expects to produce 8,500 units in February, what cost should Riga budget for?

69. The Pacioli Manufacturing Company has kept track of the number of units they have

produced each month and the cost to produce those units for the past 6 months.

Using regression, determine the cost estimation equation and the R2 for the equation. If Pacioli expects to produce 14,000 units in January, what cost should Pacioli budget for? How does the R2 help when forecasting cost and what impact does this R2 have on this estimate?

Month Number of Units Cost of Units Produced

July 10,000 $60,000

August 11,000 66,000

September 20,000 110,000

October 16,000 90,000

November 12,000 70,000

December 18,000 102,000

70. The Pacioli Manufacturing Company has kept track of the number of units they have

produced each month and the cost to produce those units for the past 6 months.

Using the high/low method, calculate the cost estimation equation. If Pacioli expects to produce 14,000 units in January, what cost should Pacioli budget for? What shortcoming of the high/low method should Pacioli consider when forecasting the cost for January?

Month Number of Units Cost of Units Produced

July 10,000 $60,000

August 11,000 66,000

September 20,000 110,000

October 16,000 90,000

November 12,000 70,000

December 18,000 102,000

$110,000 – $66,000 = 4.89

20,000 – 11,000

20,000 × $4.89 = $97,800 $110,000 – $97,800 = $12,200

Y = $4.89(X) + $12,200

Y = $4.89(14,000) + $12,000 = $80,660 projected cost for January

The high/low method does not take into consideration all data points in the range of activity and therefore may reflect events at the extremes of the range of activity and not the more normal activity. Managers should examine whether the activity at the ends of the range of activity truly reflect the entire range of activity.