Question

MANAGERIAL ACCOUNTING - TRUE OR FALSE STATEMENTS.

(PLEASE SKIP IF YOU ARE NOT ABLE TO ANSWER THEM ALL. THANK YOU!)

1. If volume increases, all costs will increase.

2. The relevant range of activity is the activity level where the firm will earn income.

3. The high-low method is used in classifying a mixed cost into its variable and fixed elements.

4. Contribution margin is the amount of revenues remaining after deducting cost of goods sold.

5. Both variable and fixed costs are included in calculating the contribution margin.

6. The break-even point is where total sales equal total variable costs.

7. If the unit contribution margin is $1 and unit sales are 10,000 units above the break-even volume, then net

          income will be $10,000.

8. The contribution margin ratio of 40% means that 60 cents of each sales dollar is available to cover fixed costs and to produce a profit.

9. The margin of safety ratio is equal to the margin of safety in dollars divided by the actual or (expected) sales.

10. If the activity index decreases, total variable costs will decrease proportionately.
11. A mixed cost has both selling and administrative cost elements.

12. The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost.

13. Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income.

14. Net income can be increased or decreased by changing the sales mix.

15. If a company has limited machine hours available for production, it is generally more profitable to produce and sell the product with the highest contribution margin per machine hour.

16. According to the theory of constraints, a company must identify its constraints and find ways to reduce or

eliminate them.

17. Cost structure refers to the relative proportion of product versus period costs that a company incurs.

18. Variable costing is the approach used for external reporting under generally accepted accounting principles.

19. The difference between absorption costing and variable costing is the treatment of fixed manufacturing

overhead.

20. Manufacturing cost per unit will be higher under variable costing than under absorption costing.

21. When absorption costing is used for external reporting, variable costing can still be used for internal reporting purposes.

22. Sales mix is a measure of the percentage increase in sales from period to period.

23. If a company has limited machine hours available for production, it is generally more profitable to produce and sell the product with the highest contribution margin per machine hour.

24. Cost structure refers to the relative proportion of fixed versus variable costs that a company incurs.

Answer 1

1. If volume increases, all costs will increase. False

1. The relevant range of activity is the activity level where the firm will earn income. False

1. The high-low method is used in classifying a mixed cost into its variable and fixed elements. True

1. Contribution margin is the amount of revenues remaining after deducting cost of goods sold. False

1. Both variable and fixed costs are included in calculating the contribution margin. False

1. The break-even point is where total sales equal total variable costs. False

1. If the unit contribution margin is $1 and unit sales are 10,000 units above the break-even volume, then net income will be $10,000. False

1. The contribution margin ratio of 40% means that 60 cents of each sales dollar is available to cover fixed costs and to produce a profit. True

1. The margin of safety ratio is equal to the margin of safety in dollars divided by the actual or (expected) sales. True

1. If the activity index decreases, total variable costs will decrease proportionately. True
2. A mixed cost has both selling and administrative cost elements. False

1. The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost. False

1. Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income. True

1. Net income can be increased or decreased by changing the sales mix. True

1. If a company has limited machine hours available for production, it is generally more profitable to produce and sell the product with the highest contribution margin per machine hour. True

1. According to the theory of constraints, a company must identify its constraints and find ways to reduce or eliminate them. True

1. Cost structure refers to the relative proportion of product versus period costs that a company incurs. False

1. Variable costing is the approach used for external reporting under generally accepted accounting principles. False

1. The difference between absorption costing and variable costing is the treatment of fixed manufacturing overhead. True

1. Manufacturing cost per unit will be higher under variable costing than under absorption costing. False

1. When absorption costing is used for external reporting, variable costing can still be used for internal reporting purposes. True
2. Sales mix is a measure of the percentage increase in sales from period to period. False
3. If a company has limited machine hours available for production, it is generally more profitable to produce and sell the product with the highest contribution margin per machine hour. True
4. Cost structure refers to the relative proportion of fixed versus variable costs that a company incurs. True