A) Assembly worker wages
B) Utilities for administrative offices
C) Depreciation on sales office
D) Customer order forms
Answer: A
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective Thinking
Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
32) Enter the letter of the type of company on the line in front of each statement. Letters may be used more than once or not at all.
A) service company
B) merchandising company
C) manufacturing company
____ generally has no inventory
____ has three types of inventory
____ inventory consists of freight-in and the cost of the product
____ has the highest percentage of labor costs
____ Wal-Mart is this type of company
Answer: A, C, B, A, B
Diff: 1
LO: 2-1
EOC: S2-1
AACSB: Reflective Thinking
Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
33) On the line in front of each statement, enter the letter corresponding to the term that best fits that statement. You may use a letter more than once and some letters may not be used at all.
A. Materials inventory E. Work in process inventory
B. Service companies F. Manufacturing companies
C. Merchandise inventory G. Merchandising companies
D. Finished goods inventory
____ typically have a single category of inventory
____ resell products they previously purchased ready-made from suppliers
____ do not have inventory for resale
____ produce its own inventory
____ transform raw materials into new finished products
____ ready to sell inventory of manufacturers
____ partially completed items of manufacturers
Answer:
G typically have a single category of inventory
G resell products they previously purchased ready-made from suppliers
B do not have inventory for resale
F produce its own inventory
F transform raw materials into new finished products
D ready to sell inventory of manufacturers
E partially completed items of manufacturers
Diff: 2
LO: 2-1
EOC: E2-1
AACSB: Reflective Thinking
Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
34) Describe service, merchandising, and manufacturing companies.
Answer: Service companies sell intangible services such as insurance, consulting and healthcare. Salaries and wages often are the largest part of their costs. They usually do not have inventory or cost of goods sold accounts, although some service companies will have a small amount of supplies inventory which is used for their own use and not for sale to customers. Merchandising companies resell tangible products they buy from suppliers. Retailers and wholesalers are both types of merchandising companies. Merchandisers have inventory. Manufacturing companies use labor, plant and equipment to convert raw materials into finished products which they sell to other companies. They have three types of inventory—raw materials, work in process, and finished goods.
Diff: 2
LO: 2-1
EOC: S2-1
AACSB: Reflective Thinking
Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
35) Explain the difference between raw materials inventory, work in process inventory, and finished goods inventory.
Answer: Raw materials inventory includes all materials used to make a product including materials that become a part of the product as well as other physical materials used in a plant such as machine lubricants and janitorial supplies. Work in process inventory includes goods that are partway through the manufacturing process but not yet complete. Finished goods inventory includes completed goods that have not yet been sold.
Diff: 1
LO: 2-1
EOC: S2-1
AACSB: Reflective Thinking
Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
36) Describe a company that has some elements of all three types of companies. It is part service company, part manufacturer, and part merchandiser.
Answer: Many restaurants fall into this category. They are a service company since they serve hungry customers. They are a manufacturer since they convert raw ingredients into finished meals and they are a merchandiser since they sell ready-to-serve bottles of beer and wine.Diff: 2
LO: 2-1
EOC: S2-1
AACSB: Reflective Thinking
Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
37) Why do service firms not have inventory costs pertaining to items to be sold? What type of costs do they have?
Answer: Service firms do not have inventory costs because services cannot be produced today and stored up to sell later. They do not have inventory. They only have period costs that are expensed.
Diff: 2
LO: 2-1
EOC: S2-1
AACSB: Reflective Thinking
Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
38) Controlling costs across the entire value chain often requires a trade-off between the individual elements of the value chain.
Answer: TRUE
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective Thinking
Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
39) All of the components of manufacturing–from research and development through customer service after the sale–are part of a firm's value chain.
Answer: TRUE
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective Thinking
Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
40) The activities in the value chain must take place in a specific order.
Answer: FALSE
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective Thinking
Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
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