Question 1

The difficulty in preparing a scratch budget is knowing

Accepted Answer

Preparing a scratch budget involves estimating demand, identifying necessary resources, and determining the quantity of resources needed, making all options relevant challenges.

Question 2

If the price of labor increases, an organization would most likely shift from

Accepted Answer

When labor costs increase, organizations often shift from labor-intensive methods to capital-intensive methods to reduce reliance on expensive labor and increase efficiency through automation and machinery.

Question 3

Which of the following expenses would be best estimated based on output?

Accepted Answer

Supplies are often variable costs that fluctuate with the level of production or output, making them best estimated based on output.

Question 4

Which of the following expenses is most likely to be a fixed cost?

Accepted Answer

Rent is typically a fixed cost because it does not change with the level of production or sales.

Question 5

Which method should be used to estimate health insurance expenses?

Accepted Answer

Health insurance expenses are typically estimated as a variable cost based on another expense, such as payroll, because they are often calculated as a percentage of employee salaries or wages.

Question 6

Which method should be used to estimate supply expenses?

Accepted Answer

Supply expenses are typically variable costs that change with the level of output, making option B the most appropriate method for estimation.

Question 7

Assume a lab test requires 15 minutes of a technician's time to draw one vial of blood and lab techs work 2080 hours per year. If 56,000 lab tests are forecasted for the upcoming year, the total man hours (FTEs) needed to complete these tests will be

Accepted Answer

Each test takes 15 minutes, so 56,000 tests require 840,000 minutes. Converting to hours: 840,000 / 60 = 14,000 hours, which is more than 8320 hours.

Question 8

Assume a lab test requires 15 minutes of a technician's time to draw one vial of blood, each vial costs $0.50, and 56,000 lab tests are forecasted for the upcoming year. What should the supply expense be for the collection vials?

Accepted Answer

The cost per vial is $0.50, and with 56,000 tests, the total cost is 56,000 x $0.50 = $28,000.

Question 9

Assume a start-up business has forecasted that expenses will exceed revenues during the first year of operation. Which of the following actions can owners/managers enact to improve operating results?

Accepted Answer

All of the above actions can potentially improve operating results by either increasing revenue or decreasing costs. Increasing prices and extending operating hours can boost sales, while reducing variable and fixed costs can lower expenses.

Question 10

The breakeven formula is

Accepted Answer

The breakeven point is calculated by dividing the total fixed costs by the difference between the price per unit and the average variable cost per unit.

Question 11

An increase in average variable cost will

Accepted Answer

An increase in average variable cost raises the total cost for each unit, requiring more units to be sold to cover fixed costs, thus increasing the breakeven quantity.

Question 12

An increase in average variable cost and a reduction in fixed cost will

Accepted Answer

The answer of An increase in average variable cost and...

Question 13

An increase in price and a reduction in fixed cost will

Accepted Answer

An increase in price increases contribution margin per unit, and a reduction in fixed costs lowers the total fixed costs, both of which decrease the breakeven quantity.

Question 14

Which of the following will decrease breakeven quantity?

Accepted Answer

An increase in price and decreases in both average variable and total fixed costs will reduce the breakeven quantity, as it increases the contribution margin and reduces the costs that need to be covered.

Question 15

The contribution margin is

Accepted Answer

The contribution margin is the amount by which selling one additional unit increases profit, calculated as sales price minus variable costs per unit.

Question 16

The formula for the contribution margin is

Accepted Answer

The contribution margin is calculated as the selling price per unit minus the variable cost per unit, which is represented by Price - average variable cost (P-AVC).

Question 17

Assume an organization must invest $100,000 in fixed costs to produce a product that sells for $100 and requires $50 in variable costs to produce one unit. What is the organization's breakeven volume?

Accepted Answer

The breakeven volume is calculated by dividing the fixed costs by the contribution margin per unit (selling price - variable cost). Here, it is $100,000 / ($100 - $50) = 2000 units.

Question 18

Assume an organization must invest $700,000 in fixed costs to produce a product that sells for $75 and requires $40 in variable costs to produce one unit. What is the organization's breakeven volume?

Accepted Answer

The answer of Assume an organization must invest $700,000 in...

Question 19

Assume an organization must invest $700,000 in fixed costs to produce a product that sells for $75 and requires $40 in variable costs to produce one unit. How many units of output must be sold to earn a $50,000 profit?

Accepted Answer

To find the number of units needed to achieve a $50,000 profit, use the formula: (Fixed Costs + Desired Profit) / (Selling Price - Variable Cost per Unit). Plugging in the values: ($700,000 + $50,000) / ($75 - $40) = 21,428 units.

Question 20

An organization should shut down immediately if

Accepted Answer

An organization should shut down immediately if the price does not cover the average variable cost because it cannot cover its variable costs, leading to losses greater than its fixed costs.

Quiz 5: Scratch Budgeting