Question 1

The contribution margin ratio is computed as contribution margin divided by sales.

Accepted Answer

This statement is correct, as the contribution margin ratio is a calculation used to determine the percentage of each dollar of sales that goes towards covering fixed costs and generating profits. It is calculated by dividing the total contribution margin by total sales.

Question 2

Sales mix is generally defined as the relative distribution of sales among the various products sold.

Accepted Answer

Sales mix refers to the proportion or distribution of sales among different products or services offered by a business. Therefore, the statement is true.

Question 3

For short-run production planning, information in the variable costing format is more useful to management than is information in the absorption costing concept format.

Accepted Answer

Variable costing separates fixed and variable costs, making it easier for management to make short-run production decisions, while absorption costing combines all costs together, making it less useful for short-run planning.

Question 4

Companies prepare contribution margin reports by market segments and product segments because products contribute to profitability in various ways.

Accepted Answer

This is because products may have different profit margins, sales volumes, and contribution margins. By segmenting by market and product, companies can evaluate which products are most profitable and focus on those areas for growth and development.

Question 5

If the ability to sell and the amount of production facilities devoted to each of two products is equal, it is profitable to increase the sales of that product with the lowest contribution margin.

Accepted Answer

Increasing sales of the product with the higher contribution margin would be more profitable because the contribution margin represents the per-unit profit before fixed costs, meaning more profit is generated per unit sold.

Question 6

In contribution margin analysis, the quantity factor is computed as the difference between actual quantity sold and the planned quantity sold, multiplied by the planned unit sales price or unit cost.

Accepted Answer

This statement accurately describes the computation of the quantity factor in contribution margin analysis. The quantity factor helps to isolate the effect of changes in sales volume on a company's overall profitability by comparing the actual level of sales to the expected level of sales.

Question 7

In the short run, the selling price of a product should normally not be less than the variable costs and expenses of making and selling it.

Accepted Answer

In the short run, the selling price should cover at least the variable costs and expenses to ensure profitability. If the selling price is less than the variable costs and expenses, the company would be losing money on each unit sold.

Question 8

Direct labor cost is an example of a controllable cost for the supervisor of a manufacturing department.

Accepted Answer

Direct labor cost is a cost that can be directly influenced and controlled by the supervisor of a manufacturing department. They can control the number of hours worked by employees and the wage rates paid, making it a controllable cost.

Question 9

In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in unit sales price or cost, is termed the quantity factor.

Accepted Answer

The quantity factor refers to the effect of a change in the number of units sold on the contribution margin, assuming no change in unit sales price or cost.

Question 10

In contribution margin analysis, the unit price or unit cost factor is computed as the difference between actual quantity sold and the planned quantity sold, multiplied by the planned unit sales price or unit cost.

Accepted Answer

The unit price or unit cost factor is computed as the difference between the actual unit price or unit cost and the planned unit price or unit cost, multiplied by the actual quantity sold.

Question 11

In the long run, for a business to remain in operation, the selling price of a product should normally cover all costs and expenses and provide a reasonable income.

Accepted Answer

This is a basic principle of business profitability and sustainability. If a product's selling price does not cover all costs and expenses, the business will eventually suffer financial losses and may not be able to stay in operation. Additionally, providing a reasonable income is important for the well-being and retention of employees.

Question 12

In contribution margin analysis, the effect of a difference in unit sales price or unit cost on the number of units sold is termed the unit price or unit cost factor.

Accepted Answer

The statement is true. The unit price or unit cost factor refers to how changes in the sales price or cost per unit impact the number of units sold.

Question 13

The systematic examination of differences between planned and actual contribution margins is termed contribution margin analysis.

Accepted Answer

The statement is true. Contribution margin analysis involves comparing planned and actual contribution margins to identify differences and reasons for those differences.

Question 14

In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in unit sales price or cost, is termed the unit price or unit cost factor.

Accepted Answer

In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in unit sales price or cost, is termed the sales volume factor, not the unit price or unit cost factor.

Question 15

In contribution margin analysis, the effect of a difference in unit sales price or unit cost on the number of units sold is termed the quantity factor.

Accepted Answer

In contribution margin analysis, the effect of a difference in unit sales price or unit cost on the number of units sold is termed the sales mix variance, not the quantity factor. The quantity factor typically refers to the impact of a change in the quantity sold on total contribution margin, separate from changes in sales price or unit cost.

Question 16

For short-run production planning, information in the absorption costing format is more useful to management than is information in the variable costing format.

Accepted Answer

For short-run production planning, information in the variable costing format is more useful to management. This is because variable costing separates fixed and variable costs, providing a clearer picture of how changes in production levels will affect costs and profits. Absorption costing, on the other hand, includes fixed overhead costs in product costs, which can make it more difficult to determine the impact of changes in production levels.

Question 17

In evaluating the performance of salespersons, the salesperson with the highest level of sales should be evaluated as the best performer.

Accepted Answer

Evaluating the performance of salespersons solely based on the level of sales can be misleading. It is important to consider other factors such as customer satisfaction, meeting targets, teamwork, and communication skills when evaluating a salesperson's performance. Simply achieving high sales does not necessarily equate to being the best performer.

Question 18

In contribution margin analysis, the unit price or unit cost factor is computed as the difference between the actual unit price or unit cost and the planned unit price or unit cost, multiplied by the actual quantity sold.

Accepted Answer

This statement accurately describes the computation of the unit price or unit cost factor in contribution margin analysis.

Question 19

If the ability to sell and the amount of production facilities devoted to each of two products is equal, it is profitable to increase the sales of that product with the highest contribution margin.

Accepted Answer

Increasing sales of the product with the highest contribution margin would result in higher profits as long as the ability to sell and production facilities are equal across both products.

Question 20

Ford's Expedition sport utility vehicle is its most profitable model. Therefore, Ford need not promote its Expedition model anymore.

Accepted Answer

Just because a product is already profitable does not mean a company should stop promoting it. Promotion helps to maintain the product's profitability and attract new customers.

Quiz 5: Variable Costing for Management Analysis