Question 1

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 2

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 computed by dividing the contribution margin (sales minus variable expenses) by sales. This ratio helps to determine the percentage of each sale that contributes towards covering fixed costs and generating profit.

Question 3

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 calculation is found by taking the difference between the total revenue from the increase in units sold and the additional variable costs incurred from producing those extra units. The sales factor and price factor refer to changes in unit sales price, while the cost of goods sold factor would refer to changes in unit cost.

Question 4

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 absorption costing can also be effective in short-term decisions and variable costing can be used in long-term pricing policies. Both costing methods should be considered for both short-run and long-term pricing decisions.

Question 5

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 can be influenced and managed at a specific level of management, while noncontrollable costs cannot. Direct and indirect costs refer to the nature of the cost, rather than whether it can be controlled or not.

Question 6

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 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 on the number of units sold is referred to as the unit price or unit cost factor. Therefore, the correct answer is D.

Question 8

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 allocates fixed manufacturing overhead costs to the cost of goods sold, while variable costing only includes variable manufacturing costs. This means that changes in inventory levels can impact the amount of fixed costs allocated to the cost of goods sold and therefore affect income from operations. As a result, increases or decreases in income could be misinterpreted as operating efficiencies or inefficiencies, even if they were solely caused by changes in inventory levels.

Question 9

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

This pricing strategy is known as "cost-plus pricing" which is common in the short run to cover the variable costs and generate some profit. However, in the long run, it may not be sustainable since it doesn't cover the fixed costs and may result in losses. In a monopoly situation, the seller has the power to set higher prices since there are no close substitutes, so the answer is not D.

Question 10

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 provide insight into the profitability of products, sales personnel, and sales territories. It can help identify areas for improvement and focus resources where they will have the greatest impact. Therefore, all of the above options are suitable for analysis with contribution margin reporting.

Question 11

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 of revenue that is left after deducting variable costs. This indicates the product with the highest profit margin and should be the focus of sales and production efforts.

Question 12

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

Income from operations under absorption costing is calculated as follows:
Sales - Cost of Goods Sold = Gross Profit - Selling and Administrative expenses = Income from Operations
Sales = 10,000 units x $6 per unit = $60,000
Cost of Goods Sold = Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead = $20,000 + $6,600 + $3,300 + $5,000 = $35,900
Gross Profit = $60,000 - $35,900 = $24,100
Selling and Administrative expenses = $5,200
Income from Operations = $24,100 - $5,200 = $18,900. Therefore, the correct answer is B.

Question 13

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 14

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 under absorption costing, we need to allocate the fixed manufacturing overhead cost per unit to the product's cost.

Total cost per unit = Direct materials + Direct labor + Variable overhead + (Fixed overhead/Number of units produced)

= $20 + $4 + $1 + ($10,000/2,000 units) = $25.

Revenue per unit = $35.

Therefore, the gross profit per unit = Revenue per unit - Total cost per unit = $35 - $25 = $10.

Total gross profit = Gross profit per unit x Total units sold = $10 x 2,790 units = $27,900.

Hence, the correct answer is C.

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 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 16

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 answer of If sales totaled $200,000 for the current...

Question 17

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 by using the absorption costing method, income could appear to be higher by producing more inventory. This is because under absorption costing, fixed manufacturing overhead costs are included in the cost of each unit produced, and as more units are produced, these fixed costs are spread over a greater number of units, reducing the cost per unit and increasing profit. This can lead to misleading results and decision making.

Question 18

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

The relative distribution of sales among various products sold is referred to as the sales mix. It is an important factor for businesses to consider as it helps to determine which products are most profitable and what changes may need to be made to improve overall profitability.

Question 19

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 20

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 can be controlled by the supervisor in terms of quantity, quality, and cost as they are purchased and used in the manufacturing process. The other options, such as insurance, depreciation, and rent on the factory building, are not directly controlled by the supervisor and are considered fixed costs.

Quiz 5: Variable Costing for Management Analysis

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?

The contribution margin ratio is computed as:

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:

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

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

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

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:

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

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:

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 absorption costing income statement?

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

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 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?

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:

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

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

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

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