Question 1

The relative distribution of sales among various products sold is referred to as the:
A) by-product mix
B) joint product mix
C) profit mix
D) sales mix

Accepted Answer

Sales mix refers to the percentage of total sales that each product contributes to.

Question 2

If sales totaled $200,000 for the current year (10,000 units at $20 each) and planned sales totaled $212,500 (12,500 units at $17 each), the effect of the unit price factor on the change in sales is a:
A) $30,000 increase
B) $12,500 increase
C) $7,500 increase
D) $37,500 decrease

Accepted Answer

The unit price factor is calculated by taking the difference in unit prices and multiplying by the actual units sold: ($20 - $17) * 10,000 units = $30,000 increase.

Question 3

Management will use both variable and absorption costing in all of the following activities except:
A) controlling costs
B) product pricing
C) production planning
D) controlling inventory levels

Accepted Answer

Variable costing is used for internal management decisions such as controlling costs, product pricing, and production planning. Absorption costing is required for external financial reporting. Controlling inventory levels is not an activity where the choice between variable and absorption costing is relevant, as inventory levels are managed based on physical units and the flow of goods rather than the costing method applied.

Question 4

Which of the following is(are) reason(s) for easy identification and control of variable manufacturing costs under the variable costing method?
A) variable and fixed costs are reported separately.
B) variable costs can be controlled by the operating management.
C) fixed costs, such as property insurance, are normally the responsibility of higher management not the operating management.
D) All of the above are true.

Accepted Answer

All of the options listed are reasons for easy identification and control of variable manufacturing costs under the variable costing method. By reporting variable and fixed costs separately, operating management can focus on controlling variable costs, which are directly influenced by their decisions and actions. Fixed costs, which are normally the responsibility of higher management, are largely outside of their control. As a result, variable costing can help to strengthen the link between costs, operating decisions, and profitability.

Question 5

The contribution margin ratio is computed as:
A) sales divided by contribution margin
B) contribution margin divided by sales
C) contribution margin divided by cost of sales
D) contribution margin divided by variable cost of sales

Accepted Answer

The contribution margin ratio is calculated by dividing the contribution margin by sales. This ratio shows the proportion of each sales dollar that is available to cover fixed expenses and contribute to profit. It is a useful tool for calculating the breakeven point and evaluating the impact of changes in sales volume on profitability.

Question 6

For a supervisor of a manufacturing department, which of the following costs is controllable?
A) direct materials
B) insurance on factory building
C) depreciation of factory building
D) rent on factory building

Accepted Answer

Direct materials costs are those materials that are used directly in the production of goods, and they are often a variable cost that can be controlled by the supervisor of a manufacturing department. Options B, C, and D are fixed costs associated with the factory building, and are typically not directly controllable by the supervisor.

Question 7

In contribution margin analysis, the increase or decrease in unit sales price or unit cost on the number of units sold is referred to as the:
A) sales factor
B) cost of goods sold factor
C) quantity factor
D) unit price or unit cost factor

Accepted Answer

The increase or decrease in unit sales price or unit cost is commonly referred to as the unit price or unit cost factor, as it directly affects the contribution margin per unit and overall profitability of the product or service. A, B, and C are not accurate descriptions of this factor.

Question 8

In the contribution margin analysis, the effect of a change in the number of units sold, assuming no change in unit sales price or unit cost, is referred to as the:
A) sales factor
B) cost of goods sold factor
C) quantity factor
D) price factor

Accepted Answer

The quantity factor refers to the effect of a change in the number of units sold on the contribution margin. This analysis assumes no change in unit sales price or unit cost. Therefore, choice C is the correct answer.

Question 9

Sales territory profitability analysis can determine profit differences between territories due to
A) pricing, variable costs, and selling costs
B) variable costs, selling costs, and types of products sold
C) pricing, selling costs, and type of products sold
D) sales volumes, pricing, and variable costs

Accepted Answer

The answer of Sales territory profitability analysis can determine profit...

Question 10

Under which inventory costing method could increases or decreases in income from operations be misinterpreted to be the result of operating efficiencies or inefficiencies?
A) only variable costing
B) only absorption costing
C) both variable and absorption costing
D) neither variable nor absorption costing

Accepted Answer

Absorption costing includes fixed manufacturing overhead costs in the cost of inventory, which means that changes in inventory levels can affect the amount of expenses recognized and therefore impact income from operations. This can lead to misinterpretation of operating efficiencies or inefficiencies, as changes in inventory levels can affect income even if there are no actual changes in operational performance. Variable costing, on the other hand, only includes variable manufacturing costs in the cost of inventory, which reduces the impact of inventory level changes on income from operations.

Question 11

Contribution margin reporting can be beneficial for analyzing, which of the following?
A) sales personnel
B) products
C) sales territory
D) all of the above

Accepted Answer

Contribution margin reporting can be used to analyze the profitability of each product, sales personnel, and sales territory. By comparing the contribution margins of different products, sales personnel, and sales territories, a company can identify areas of strength and weakness and make adjustments to improve profitability. Therefore, all of the above options are correct.

Question 12

Management should focus its sales and production efforts on the product or products that will provide
A) the highest sales revenue
B) the lowest product costs
C) the maximum contribution margin
D) the lowest direct labor hours

Accepted Answer

The maximum contribution margin is the amount by which sales exceed variable costs, and it represents the amount that can be applied towards fixed costs and profits. Therefore, focusing sales and production efforts on the product with the highest contribution margin will ultimately lead to the greatest profitability for the company.

Question 13

A business operated at 100% of capacity during its first month, with the following results:  What is the amount of the income from operations that would be reported on the variable costing income statement?
A) $18,900
B) $18,200
C) $18,000
D) $21,000

Accepted Answer

The answer of A business operated at 100% of capacity...

Question 14

Accountants prefer the variable costing method over absorption costing method for evaluating the performance of a company because
A) by using the absorption costing method, income could appear to be higher by producing more inventory.
B) by using the absorption method, more sales will be generated.
C) by using the variable costing method, the cost of goods sold will be higher as more units are manufactured and sales remain the same.
D) by using the variable costing method, all fixed and variable costs are included in the unit cost of the product manufactured.

Accepted Answer

Accountants prefer the variable costing method over absorption costing method because in the absorption costing method, income can appear to be higher by producing more inventory, which may not actually increase revenue for the company. With variable costing, only the variable costs are included in the unit cost of the product manufactured, providing a more accurate representation of the company's performance.

Question 15

A business operated at 100% of capacity during its first month, with the following results:  What is the amount of the income from operations that would be reported on the absorption costing income statement?
A) $21,000
B) $18,900
C) $18,200
D) $27,900

Accepted Answer

The answer of A business operated at 100% of capacity...

Question 16

Costs that can be influenced by management at a specific level of management are called:
A) direct costs.
B) indirect costs.
C) noncontrollable costs.
D) controllable costs.

Accepted Answer

Controllable costs are costs that can be influenced or controlled by management at a specific level of management. This means that the decisions made by that level of management can directly impact the amount of these costs incurred. Direct costs are costs that can be traced to a specific product or service, while indirect costs are costs that are not directly traceable to a specific product or service. Noncontrollable costs are costs that cannot be influenced or controlled by a specific level of management.

Question 17

A business operated at 100% of capacity during its first month, with the following results:  What is the amount of the contribution margin that would be reported on the variable costing income statement?
A) $34,200
B) $20,200
C) $29,700
D) $26,200

Accepted Answer

The answer of A business operated at 100% of capacity...

Question 18

Which of the following is not true when determining the selling price for a product?
A) Absorption costing should be used to determine routine pricing which include both fixed and variable costs.
B) As long as the selling price is set above the variable costs, the company will make a profit in short run.
C) Variable costing is effective when determining short run decisions, but absorption costing is only used for long-term pricing policies.
D) Both variable and absorption pricing plans should be considered, to include several pricing alternatives.

Accepted Answer

This statement is not true as variable costing can also be used for long-term pricing policies. Variable costing allocates only variable costs to the product while absorption costing allocates both variable and fixed costs. Both methods can be used for short-term and long-term pricing decisions.

Question 19

A business operated at 100% of capacity during its first month, with the following results:  What is the amount of the gross profit that would be reported on the absorption costing income statement?
A) $21,000
B) $18,900
C) $27,900
D) $18,000

Accepted Answer

To calculate the gross profit using absorption costing method, we need to subtract cost of goods sold (COGS) from net sales. The COGS in absorption costing includes both variable and fixed manufacturing costs. 
Variable manufacturing cost per unit = Direct Materials + Direct Labor + Variable Overhead = $17 + $23 + $8 = $48
Fixed manufacturing cost per unit = Total Fixed Manufacturing Cost / Number of units produced = ($60,000 / 4,000) = $15
Total cost per unit = $48 + $15 = $63
Total COGS for 4,000 units= 4,000 * $63 = $252,000
Net sales = 4,000 * $90 = $360,000
Gross Profit = Net Sales - COGS = $360,000 - $252,000 = $108,000
Therefore, the gross profit reported on the absorption costing income statement is $27,900 (as per option C).

Question 20

It would be acceptable to have the selling price of a product just above the variable costs and expenses of making and selling it in:
A) the long run
B) the short run
C) both the short run and long run
D) monopoly situations

Accepted Answer

In the short run, a company may set the selling price just above the variable costs and expenses to stay in business or cover their immediate bills. However, in the long run, the company must cover both variable and fixed costs to sustain operations and growth. In monopoly situations, the company can set a higher price as there are no substitutes available in the market.

Quiz 20: Variable Costing for Management Analysis

The relative distribution of sales among various products sold is referred to as the:

If sales totaled $200,000 for the current year (10,000 units at $20 each) and planned sales totaled $212,500 (12,500 units at $17 each) , the effect of the unit price factor on the change in sales is a:

Management will use both variable and absorption costing in all of the following activities except:

Which of the following is(are) reason(s) for easy identification and control of variable manufacturing costs under the variable costing method?

The contribution margin ratio is computed as:

For a supervisor of a manufacturing department, which of the following costs is controllable?

In contribution margin analysis, the increase or decrease in unit sales price or unit cost on the number of units sold is referred to as the:

In the contribution margin analysis, the effect of a change in the number of units sold, assuming no change in unit sales price or unit cost, is referred to as the:

Sales territory profitability analysis can determine profit differences between territories due to

Under which inventory costing method could increases or decreases in income from operations be misinterpreted to be the result of operating efficiencies or inefficiencies?

Contribution margin reporting can be beneficial for analyzing, which of the following?

Management should focus its sales and production efforts on the product or products that will provide

A business operated at 100% of capacity during its first month, with the following results: What is the amount of the income from operations that would be reported on the variable costing income statement?

Accountants prefer the variable costing method over absorption costing method for evaluating the performance of a company because

A business operated at 100% of capacity during its first month, with the following results: What is the amount of the income from operations that would be reported on the absorption costing income statement?

Costs that can be influenced by management at a specific level of management are called:

A business operated at 100% of capacity during its first month, with the following results: What is the amount of the contribution margin that would be reported on the variable costing income statement?

Which of the following is not true when determining the selling price for a product?

A business operated at 100% of capacity during its first month, with the following results: What is the amount of the gross profit that would be reported on the absorption costing income statement?

It would be acceptable to have the selling price of a product just above the variable costs and expenses of making and selling it in: