Question

1 If your variable cost per unit INCREASED, then your

A selling price per unit would decrease.

B break-even units would decrease.

C selling price per unit would increase.

D break-even units would increase.

2 Which of the following explains the key difference between a traditional income statement and a contribution margin income statement?

A Only the traditional income statement can correctly compute net income.

B Only the contribution margin income statement can correctly compute net income.

C Only the traditional income statement shows whether enough sales revenue is available to cover fixed costs.

D Only the contribution margin income statement shows whether enough sales revenue is available to cover fixed costs.

3 A factory sells Red Cars, Silver Cars and White Cars. At split-off all cars are painted White, but after split-off another few layers of paint are put on the Red Cars and Silver Cars. Thus, White Cars are sold at split-off, but Red Cars and Silver Cars are processed further. If Red Cars, Silver Cars, and White Cars all have different sales prices, then which method would you recommend that the company use to allocate joint costs to these joint products? (Hint: The details you are provided with can be best used to justify using which method?)

A Physical Units Method

B Weighted Average Method

C Sales-Value-at-Split-Off Method

D Net Realizable Value Method

4 As volume increases, what happens to your total variable cost?

A it increases within the relevant range

B it decreases within the relevant range

C it stays constant within the relevant range

D it stays constant between relevant ranges

5 Which of the following would you NOT find on a Contribution Margin Income Statement?

A Sales Revenue

B Cost of Goods Sold

C Variable Cost

D Net Income

6 When are fixed costs going to be constant?

A In total between relevant ranges

B In total within the relevant range

C Per unit between relevant ranges

D Per unit within the relevant range

7 Which of the following is FALSE about allocating overhead using activity-based costing overhead rates?

A You need to know the budgeted overhead amount for each activity pool to compute the predetermined overhead rate for that activity.

B You need to know the budgeted cost driver amount for each activity to compute the predetermined overhead rate for that activity.

C You need to know the actual overhead amount for each activity pool to allocate overhead to that activity.

D You need to know the actual cost driver amount for each activity to allocate overhead to that activity.

8 The Maintenance Department fixes machinery in a factory. The Janitorial Department cleans the factory. The Assembly Department puts together the products made in the factory. The Painting Department paints the products made in the factory. If the Maintenance Department performs almost no work on behalf of the Janitorial Department, and the Janitorial Department performs almost no work on behalf of the Maintenance Department, then which method would you recommend that the company use to allocate support department costs to the producing departments?

A Direct Method

B Sequential Method

C Reciprocal Method

D none of the above

9 If your selling price per unit DECREASED, then your

A contribution margin per unit increased.

B break-even sales increased.

C break-even units did not change.

D break-even sales decreased.

Answer 1

1 If your variable cost per unit INCREASED, then your

A selling price per unit would decrease.

B break-even units would decrease.

C selling price per unit would increase.

D break-even units would increase.

Answer: d. Break Even Units would Increase. The increase in variable cost per unit will increase the cost of the product and decrease the contribution per unit from the product. Hence with decrease in contribution per unit (Sale Price per Unit – Variable Cost per Unit) of the product the break even units would increase.

Break Even Unit =                   Fixed Cost               .

Sales Price Per unit – Variable Cost Per Unit

2 Which of the following explains the key difference between a traditional income statement and a contribution margin income statement?

A Only the traditional income statement can correctly compute net income.

B Only the contribution margin income statement can correctly compute net income.

C Only the traditional income statement shows whether enough sales revenue is available to cover fixed costs.

D Only the contribution margin income statement shows whether enough sales revenue is available to cover fixed costs.

D Only the contribution margin income statement shows whether enough sales revenue is available to cover fixed costs, as contribution margin income statement uses variable costing in which fixed cost of the product are not part of product cost, they are part of overhead cost of the full accounting period.

It breaks out the variable and fixed cost separately.Net income is calculated by subtracting the fixed cost from the contribution margin.

3 A factory sells Red Cars, Silver Cars and White Cars. At split-off all cars are painted White, but after split-off another few layers of paint are put on the Red Cars and Silver Cars. Thus, White Cars are sold at split-off, but Red Cars and Silver Cars are processed further. If Red Cars, Silver Cars, and White Cars all have different sales prices, then which method would you recommend that the company use to allocate joint costs to these joint products? (Hint: The details you are provided with can be best used to justify using which method?)

A Physical Units Method

B Weighted Average Method

C Sales-Value-at-Split-Off Method

D Net Realizable Value Method

Answer:      B. Weighted Average Method: Weights factors can be given to different products for the units produced

The another method can be used is Sales-Value-at Split Off method, joint cost is apportioned in the ratio of total sales value of the individual product. But it is not advisable to use because it can lead to false calculations.

         

4 As volume increases, what happens to your total variable cost?

A it increases within the relevant range

B it decreases within the relevant range

C it stays constant within the relevant range

D it stays constant between relevant ranges

1. It increases within the relevant range, the variable cost is directly linked with the volume, as the volume increases it increases. It varies with output produced by the firm.

5 Which of the following would you NOT find on a Contribution Margin Income Statement?

A Sales Revenue

B Cost of Goods Sold

C Variable Cost

D Net Income

Answer: B. Cost of Goods Sold. Contribution Margin Income Statement uses Variable costing method. It breaks out the variable and fixed cost separately.Net income is calculated by subtracting the fixed cost from the contribution margin

6 When are fixed costs going to be constant?

A In total between relevant ranges

B In total within the relevant range

C Per unit between relevant ranges

D Per unit within the relevant range

1. In total within relevant ranges.it do not vary with the production level. However fixed cost per unit decreses as production increases.

7 Which of the following is FALSE about allocating overhead using activity-based costing overhead rates?

A You need to know the budgeted overhead amount for each activity pool to compute the predetermined overhead rate for that activity.

B You need to know the budgeted cost driver amount for each activity to compute the predetermined overhead rate for that activity.

C You need to know the actual overhead amount for each activity pool to allocate overhead to that activity.

D You need to know the actual cost driver amount for each activity to allocate overhead to that activity.

8 The Maintenance Department fixes machinery in a factory. The Janitorial Department cleans the factory. The Assembly Department puts together the products made in the factory. The Painting Department paints the products made in the factory. If the Maintenance Department performs almost no work on behalf of the Janitorial Department, and the Janitorial Department performs almost no work on behalf of the Maintenance Department, then which method would you recommend that the company use to allocate support department costs to the producing departments?

A Direct Method

B Sequential Method

C Reciprocal Method

D none of the above

Answer A. Direct Method

9 If your selling price per unit DECREASED, then your

A contribution margin per unit increased.

B break-even sales increased.

C break-even units did not change.

D break-even sales decreased.

d. break even sales decreased. With the increase in selling price the contribution per unit will increase and fixed cost remaining constant, leads to decrease the break even sales.