Question

1. At Wild Sports Corp., the selling price per unit for lawn mowers is $120, variable cost per unit is $55. Fixed costs are $130,000. Contribution Margin per unit is?
   1. $65
   2. $75
   3. $175
   4. $30
2. Salaries of the maintenance workers, janitors, and security guards will be treated as ____________.
   1. Indirect labor cost
   2. Direct labor
   3. Factory overhead cost
   4. Conversion cost
3. You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month. What is your differential revenue?
   1. $300
   2. $500
   3. $1,500
   4. $1,800
4. At Sterio Co. Ltd., the selling price per unit for lawn mowers is $120, variable cost per unit is $55. Fixed costs are $130,000. Break-Even Point is?
   1. 1,000 units
   2. 1,083 units
   3. 2,000 units
   4. None of these
5. At Alpha Corp., the selling price per unit for lawn mowers is $120, variable cost per unit is $55. Fixed costs are $130,000. Expected sales are 4,200 units. The Margin of Safety is?
   1. $264,000
   2. $384,000
   3. $143,000
   4. $121,000
6. Which of the following is the assumption of C-V-P Analysis?
   1. Costs can be accurately separated into variable and fixed components.
   2. Fixed costs remain fixed.
   3. Applied only to homogenous products
   4. Variable costs per unit do not change over the relevant range.
7. At Winford Corp., the selling price per unit for lawn mowers is $120, variable cost per unit is $55. Fixed costs are $130,000. Expected sales are 4,200 units. What is profit expected to be?
   1. $264,000
   2. $384,000
   3. $143,000
   4. $121,000
8. If actual overhead is $400,000 for the year but $390,000 was applied to production, we would say that the variance is _______________ overhead.
   1. Under applied
   2. Over applied
   3. Applied
   4. All of the above
9. If actual overhead is $400,000 for the year but $410,000 was applied to production, we would say that the variance is ______________ overhead.
   1. Under applied
   2. Over applied
   3. No under or over applied
   4. All of the above
10. Under _________ costing, all production costs, variable and fixed, are included when determining unit product cost.
    1. Process
    2. Job order
    3. Absorption
    4. Variable

Answer 1

1. Contribution Margin = Sales Price - Variable Cost

Contribution Margin = $120 - $55 = $65 per unit

2. Indirect Labor

Indirect Labor is any labor cost which supports production but is not directly related to the process of conversion of Direct Materials into Finished Goods.

3. $500

Original Revenue = $1,500

New Revenue = $2,000

Hence, Differential Revenue = $2,000 - $1,500

4. Break Even Point in units = Fixed Cost / Contribution Margin

Contribution Margin per unit = Selling Price - Variable Cost

Contribution Margin = $120 - $55 = $65 per unit

Break Even Point in units = $130,000 / $65 = 2,000 units

5. Break Even Point in units = Fixed Cost / Contribution Margin

Contribution Margin per unit = Selling Price - Variable Cost

Contribution Margin = $120 - $55 = $65 per unit

Break Even Point in units = $130,000 / $65 = 2,000 units

Expected Sales = 4,200 units

Margin of Safety = Total Sales - Break Even Point

Margin of Safety = 4,200 - 2,000 = 2,200 units

Margin of Safety in $ = 2,200 x $120 = $264,000

6. d Variable Cost per unit do not change over the relevant range

7. Break Even Point in units = Fixed Cost / Contribution Margin

Contribution Margin per unit = Selling Price - Variable Cost

Contribution Margin = $120 - $55 = $65 per unit

Break Even Point in units = $130,000 / $65 = 2,000 units

Expected Sales = 4,200 units

Margin of Safety = Total Sales - Break Even Point

Margin of Safety = 4,200 - 2,000 = 2,200 units

Profit = Margin of Safety x Contribution Margin

Profit = 2,200 x $65 = ​​​​​​$143,000

8. Under Applied

Under Applied = Actual > Applied

9. Over Applied

Over Applied = Applied > Actual

10. Absorption

Under Absorption Costing Fixed Cost are apportioned to Produced Units.

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