Question

The contribution margin ratio is:

a) the percent of each sales dollar that remains to cover the variable and fixed costs.

b) the percent of each sales dollar that remains after deducting the total unit variable cost.

c) all of these.

d) the same as the gross margin ratio.

A firm forecasts the following information:

• Sales $250,000
• Break-even sales $190,000

What would be the firm's margin of safety percent?

a) 76.0%

b) 24.0%

c) 131.6%

d) 31.6%

Which of the following is NOT a formula related to materials cost variances?

a) (AQ × SP) - (SQ × SP)

b) (AH × AR) - (SH × SR)

c) (AQ × AP) - (AQ × SP)

d) (AQ × AP) - (SQ × SP)

Which of the following is TRUE about labor efficiency (quantity) variances?

a) It is calculated using the formula: (AH × AR) - (AH × SR).

b) The production manager generally must explain why the actual hours were different from standard.

c) The wage rate paid to employees differs from standard rate.

d) All of these are true.

Answer 1

Ans. 1	Optioin b the percent of each sales dollar that remains after deducting the total unit variable cost.
	Explanations: Contribution margin is equal to the difference between sales and variable cost. So the contribution margin
	ratio is the percentage of contribution margin (i.e. sales - variable cost) on total sales.
Ans. 2	Option b 24.0%
	Margin of safety percent = (Sales - Break even sales) / Sales * 100
	($250,000 - $190,000) / $250,000 * 100
	$60,000 / $250,000 * 100
	24.0%
Ans. 3	Option b   (AH * AR) - (SH * SR)
	Explanations:
	Option a is related to Materials quantity variance.
	Option b is related to Total labor variance.
	Option c is related to Materials price variance.
	Option d is related to Total Materials variance.
Ans. 4	Option c The production manager generally must explain why the actual hours were different from standard.
	Explanations:
	Labor efficiency variane highlights the difference of standard hours and actual hours,
	and this difference is multiplied by standard rate [ (AH * SR) - (SH * SR)].
	The given formula in option a is related to labor rate variance.
	The explanation contains in option c is related to the labor rate variance, because the
	labor rate variance shows the difference between standard rate and actual rate.