Quiz 16: Managing Costs and Uncertainty

Effective cost control begins in the planning stage of the management cycle.

For cost control purposes,actual costs should be compared to prior period costs.

A flexible budget compares actual costs to budgeted costs at several activity levels.

When a CPA firm uses taped lectures rather than live presentations for continuing education,it is engaging in a cost reduction strategy.

Cost control should be viewed as a short-term process.

Property taxes on an organization's plant building are considered as committed costs.

Depreciation of fixed assets is considered to be a discretionary cost.

The benefits of discretionary costs are usually measurable in monetary terms.

Research and development expenses are normally considered to be discretionary costs.

When budgeting for discretionary costs,less is always better.

The value of discretionary costs is often measured using non-monetary measures.

Engineered costs may be either variable or fixed.

Maintaining excessive cash may reduce firm profitability because of low returns on cash investments.

An organization's bond rating may cause the organization to hold larger levels of cash than are necessary for operations.

Increasing the discount period on accounts receivable will increase an organization's cash levels.

Accelerating inventory turnover will increase an organization's levels of cash.

The higher an organization's capital costs,the greater the opportunity cost of holding idle cash.

Supply chain management can reduce the processing time for an organization to obtain raw materials.

A coefficient of determination has a value between -1 and +1.

A coefficient of determination has a value between 0 and +1.

Increases in per unit variable costs and total fixed costs should be minimized through the process of ________________________________.

Finding acceptable alternatives to higher cost items or not spending money for goods and services is referred to as ________________________________.

Lowering existing costs of producing a good or service is referred to as ___________________.

Costs that are necessary to sustain an organization's operations are referred to as ____________________________.

A cost that must be reviewed periodically to determine if it is still appropriate and necessary is referred to as a __________________________________________.

Costs that have been found to bear observable and known relationships to a quantifiable activity base are referred to as __________________________________.

Having sufficient cash to pay liabilities as they become due is referred to as an organization's ________________________.

Current assets minus current liabilities equals ___________________________.

The portion of variance in a dependent variable explained by an independent variable is referred to as the _________________________________________.

The use of options and forward contracts to manage price risk is referred to as ___________________.

A logical structure of activities designed to analyze and evaluate management of expenditures is a cost A)consciousness system. B)understanding system. C)avoidance system. D)control system.

When the organizational output is difficult to define,management may rely on ____ for cost control. A)qualitative measures B)program budgeting C)surrogate measures of output D)all of the above

Setting organizational goals and objectives and preparing a budget are aspects of control A)during an event. B)before an event. C)after an event. D)before,during,and after an event.

For cost control purposes,actual costs should be compared to A)the original budget. B)actual costs for the prior period. C)a flexible budget. D)a static budget.

Which of the following does not create a specific price level change? A)change in production technology B)change in the rate of inflation C)changes due to supply and demand D)changes in the number of competing suppliers

As the economy becomes more and more depressed,a company's management decides to slash spending on research and development.What is the likely effect of this action on net income? Net income will be A)higher this period and lower in future periods. B)higher this period and higher in future periods. C)lower this period and higher in future periods. D)lower this period and lower in future periods.

Spending levels in prior years are often the basis of A)traditional budgets. B)zero-base budgets. C)variance targets. D)engineered cost analyses.

Minimizing period-by-period increases in unit variable costs and total fixed costs defines efforts of cost A)control. B)avoidance. C)containment. D)reduction.

Cost containment practices by a firm would not be effective for cost increases caused by A)inflation. B)a reduction in the quantity of an input purchased. C)normal seasonality. D)a reduction in the number of suppliers.

All of the following are explanations of cost changes.Which of these influences can be substantially affected by cost containment measures? A)inflation/deflation B)changes in quantities purchased C)technological change D)changes in supply chain costs

The greatest degree of control for committed fixed costs is exerted A)in the post-investment audit. B)during the life of the investment. C)prior to acquisition. D)by equipment operators.

Careful analysis of the capital budget is an important control activity for A)variable costs. B)discretionary costs. C)committed costs. D)period costs.

An effective control system functions before,during,and after an event.However,little control is possible during the event for most A)variable manufacturing costs. B)variable period costs. C)discretionary fixed costs. D)committed fixed costs.

The term "committed costs" refers to costs that A)management decides to incur in the current period to enable the company to achieve objectives other than the filling of orders placed by customers. B)are likely to respond to the amount of attention devoted to them by a specified manager. C)are governed mainly by past decisions that established the present levels of operating and organizational capacity and that only change slowly in response to small changes in capacity. D)fluctuate in total in response to small changes in the rate of utilization of capacity.

A committed fixed cost can A)never be eliminated. B)be eliminated in the short term and in the long term. C)be eliminated in the long term but not in the short term. D)be eliminated in the short term but not in the long term.

Which of the following is an example of a committed fixed cost? A)investment in production facilities B)advertising C)preventive maintenance D)employee training programs

A company would be reducing its discretionary costs if it A)fired a production supervisor. B)closed its research and development department. C)successfully negotiated a reduction in its factory rent. D)reduced its direct labor costs by hiring temporary workers.

If a discretionary cost can be treated like an engineered cost,cost control may be achieved through the use of A)program budgeting. B)zero-base budgeting. C)capital budgeting. D)flexible budgeting.

Most discretionary costs relate to A)plant and equipment acquisitions. B)long-term investments. C)basic personnel costs. D)service activities.

If a cost can be reduced to zero in the short run without significantly harming the organization,the cost is a A)variable cost. B)committed cost. C)discretionary cost. D)product cost.

Discretionary costs are often difficult to control because A)it is difficult to measure the cost. B)they cannot be changed in the short run. C)they cannot be changed from period to period. D)it is difficult to measure the benefits of discretionary activities.

Which of the following is likely to be a discretionary cost in most organizations? A)managerial training programs B)managerial labor costs C)factory utilities D)factory rent

The level of discretionary costs A)are set by management for one period at a time. B)cannot be changed in the short run. C)are determined when capital investment is undertaken. D)always varies with sales.

Which of the following is not a factor that directly affects the budget for a discretionary cost? A)the importance of the activity to the achievement of the organization's goals B)last period's budget C)the expected level of operations D)managerial negotiations in the budgeting process

If an actual discretionary cost is exactly equal to the budgeted level of that cost,which of the following statements is true? A)Funds were appropriately spent. B)The discretionary activity was efficient. C)The discretionary activity was effective. D)None of the above.

Discretionary activities in an organization are determined based on A)organizational policies and managerial preferences. B)the budgeted amount from the prior period. C)the level of long-term investment. D)an organization's internal control.

The term "discretionary costs" refers to A)costs that management decides to incur in the current period to enable the company to achieve objectives other than the filling of orders placed by customers. B)costs that are likely to respond to the amount of attention devoted to them by a specified manager. C)costs that are governed mainly by past decisions that established the present levels of operating and organizational capacity and that only change slowly in response to small changes in capacity. D)amortization of costs that were capitalized in previous periods.

Avoidable costs are usually A)committed. B)common. C)discretionary. D)joint.

Which of the following is least likely to be a discretionary cost? A)salaries of salespeople B)advertising C)maintenance D)insurance

For cost control purposes,fixed costs are classified as A)product or period costs. B)discretionary or committed. C)direct or common. D)sunk or avoidable.

If economic activity slows down,total costs could easily decline in which of the following categories? A)variable costs and committed fixed costs B)variable costs and discretionary fixed costs C)variable costs only D)committed fixed costs only

Usually,with respect to a variable cost,optimal control is exerted when the cost A)can be controlled prior to incurrence. B)is compared to its budget amount. C)increases steadily over time. D)is closely monitoreD.

Which kind of costs could be eliminated by closing a sales office? A)yes yes no B)yes no yes C)yes no no D)no no yes

A major difference between committed and discretionary fixed costs is that A)incurring committed fixed costs is less risky than using discretionary costs. B)managers are usually responsible for committed fixed costs but not for discretionary fixed costs. C)incurring discretionary fixed costs rather than committed fixed costs gives a company more flexibility in controlling costs. D)companies are using more discretionary fixed costs because labor is easier to "remove" than technology.

The distinction between avoidable and unavoidable costs is similar to the distinction between A)variable costs and fixed costs. B)variable costs and mixed costs. C)step-variable costs and fixed costs. D)discretionary costs and committed costs.

The maximum allowable expenditure is the A)appropriation. B)allowance. C)allocation. D)committed fixed cost.

If a firm is successful in meeting its output goal for a period,the firm has been A)efficient. B)effective. C)profitable. D)exercising cost containment measures.

A reasonable measure of efficiency relies on A)qualitative measures of inputs and outputs. B)a match of inputs in one period with outputs in subsequent periods. C)a causal relationship between inputs and outputs. D)a ratio of planned output to actual output.

A ratio of outputs to inputs is a(n) A)effectiveness measure. B)efficiency measure. C)qualitative measure. D)cost reduction measure.

A small manufacturing company recently stated its sales goal for a period was $100,000.At this level of activity,its budgeted expenses were $80,000.Its actual sales were $100,000,but its actual expenses were $85,000.This company operated A)effectively and efficiently. B)neither effectively nor efficiently. C)effectively but not efficiently. D)efficiently but not effectively.

Dawson Corporation has a sales goal of $500,000 for the coming year.Based on this level of activity,Dawson budgets its total expenses at $450,000.Actual sales are $480,000 and actual costs are $460,000.Dawson Corporation's operations were A)both efficient and effective. B)neither efficient nor effective. C)efficient but not effective. D)effective but not efficient.

The difference between actual sales and budgeted sales is A)a flexible budget variance. B)an efficiency measure. C)required in program budgeting. D)an effectiveness measure.

A cost that is found to bear an observable and known relationship to a quantifiable activity base is a(n) A)discretionary cost. B)product cost. C)period cost. D)engineered cost.

Control of engineered costs is frequently achieved through the use of A)zero-base budgeting. B)program budgeting. C)standards. D)cash budgeting.

A variance represents the difference between a budgeted and an actual cost.Thus,the variance measures A)only controllable cost differences. B)only uncontrollable cost differences. C)both uncontrollable and controllable cost differences. D)the effectiveness of management.

Assume actual output exceeds the level of output in the original budget.Costs in which of the following categories will exceed the original budget? A)total variable costs B)committed fixed costs C)discretionary fixed costs D)all of the above

An organization plans to produce and sell 50,000 units.It actually produces and sells 45,000 units.Total costs would be expected to be below the planned level due to cost A)consciousness. B)control. C)reductions. D)behavior.

Epplin Company The following information is provided for Epplin Company for the month of September: Refer to Epplin Company.What is the price variance? A)$4,450 F B)$4,450 U C)$1,000 F D)$1,000 U

Epplin Company The following information is provided for Epplin Company for the month of September: Refer to Epplin Company.What is the efficiency variance? A)$4,450 F B)$4,450 U C)$1,000 F D)$1,000 U

Epplin Company The following information is provided for Epplin Company for the month of September: Refer to Epplin Company.What is the fixed spending variance? A)$590 U B)$590 F C)$190 F D)$190 U

Epplin Company The following information is provided for Epplin Company for the month of September: Refer to Epplin Company.What is the volume variance? A)$590 U B)$590 F C)$190 F D)$190 U

Which of the following strategies is used to deal with uncertainty related to a specific event? A)Statistical analysis B)Cost restructuring C)Hedging D)Insurance

Which of the following strategies is used to deal with uncertainty related to price risk? A)Statistical analysis B)Cost restructuring C)Hedging D)Insurance

Which of the following strategies is used to deal with uncertainty related to estimating future costs? A)Statistical analysis B)Cost restructuring C)Hedging D)Insurance

In the least-squares equation,y = a + bX,a represents A)the coefficient of determination. B)the level of activity. C)the fixed component of a cost. D)the variable cost per unit.

Discuss the various elements of the cost control process.

What are the five steps in implementing a system of cost control?

What are the differences between committed fixed costs and discretionary fixed costs?

What are the five steps involved in implementing a cost control system?

What factors make discretionary costs difficult to control?

When can a discretionary fixed cost be subjected to control methods that are used for engineered costs?

What factors influence the total level of discretionary costs in an organization?

How does strategic staffing fit in with departmental staffing?

What are the usual sources for cash in an organization?

What are the two main sources of uncertainty in cost management?

What are four generic strategies that may be used in cost management to deal with uncertainty?

Explain the meaning of the coefficient of determination in cost estimation.

Adams Company has made the following information available for the month of March:

Radtke Company has provided the following information for the month of November:

McKinney and Associates provided the following information relative to the times and costs to prepare a simple income tax return:

Taylor Corporation Taylor Corporation manufactures and sells baseball bats.For a recent period,its production and sales objectives were each set at 20,000 units.Also,for this period the firm had estimated costs as follows: Refer to Taylor Corporation.For this question only,assume that Taylor Corporation actually produced and sold 18,000 baseball bats.Taylor Corporation's operations for the period would (on an overall basis)be regarded as efficient if total costs were below what amount?

Taylor Corporation Taylor Corporation manufactures and sells baseball bats.For a recent period,its production and sales objectives were each set at 20,000 units.Also,for this period the firm had estimated costs as follows:

Taylor Corporation Taylor Corporation manufactures and sells baseball bats.For a recent period,its production and sales objectives were each set at 20,000 units.Also,for this period the firm had estimated costs as follows: Refer to Taylor Corporation.Note that the budget for discretionary fixed costs is $40,000.If actual discretionary fixed costs were $50,000,could cost control have still been effective? Explain.