Question

All other things being equal, if a division’s traceable fixed expenses increase:

	1) The divisions’ contribution margin will increase.
	2) The divisions’ contribution margin will decrease.
	3) The divisions’ segment margin will increase.
	4) The divisions’ segment margin will decrease.

If there are traceable fixed costs then:

	1) The company will breakeven.
	2) Sales will be greater than the contribution margin.
	3) The segment margin will be less than the contribution margin.
	4) None of the above.

In a Net Present Value computation,

	1) You net together the present value of the cash inflows and the cash outflows.
	2) Cash savings are considered cash outflows.
	3) You use a present value of an annuity table to compute the cash inflow for salvage value.
	4) Cash expenses are cash inflows and cash revenues are cash outflows.

The principal difference between variable costing and absorption costing center on:

	1) Whether variable manufacturing costs should be included in product costs.
	2) Whether fixed manufacturing costs should be included in product costs.
	3) Whether selling and administrative costs should be included in product costs.
	4) None of the above.

Answer 1

4) the division's segment margin will decrease.

Contribution is the difference between sales and variable costs. Hence contribution is affected by change in sales or variable cost. Segment margin is the difference between contribution and fixed costs. Hence if fixed costs increase , segment margin will decrease.

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3) the segment margin will be less than contribution margin.

Break even occurs when there is no profit no loss. Sales will be gretaer than contribution margin is dependent on the variable costs. Since contribution is the difference between sales and variable costs. If there are traceable fixed costs , then the segment margin will be less than contribution margin because segment margin is the difference between contribution margin and fixed costs.

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1) you net together the present values of cash inflows and outflows.

Net present value is the difference between present value of cash inflows and cash inflows. It is calculated as

PV of cash inflows - PV of cash outflows.

Cash savings are cash inflows. For present value of salvage value present value factor (PVF) table is used and not Present value of annuity factor(PVAF) . Cash expenses are outflows and revenues are inflows.

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2) whether fixed manufacturing costs should be included in product cost

Absorption costing includes all the cost incurred in the manufacturing of the product. But variable costing includes only variable costs directly incurred in the manufacturing of the product.