Management Accounting 6th Canadian Edition Test Bank

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Management Accounting 6th Canadian Edition Test Bank

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Chapter 2   Cost Behaviour and Cost–Volume Relationships

 

1) The way in which the activities of an organization affect its costs is called cost behaviour.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 37

Objective:  1

 

2) Cost drivers are machines that take the place of labour.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 37

Objective:  1

 

3) A variable cost varies per unit.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 37

Objective:  1

 

4) A fixed cost is fixed per unit.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 37

Objective:  1

 

5) The volume of sales at which revenue equals expenses, and net income is zero is known as the break-even point.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 42

Objective:  3

 

6) The variable cost percentage plus the contribution margin percentage must equal 100 percent.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 42

Objective:  3

 

7) The break-even point is located at the intersection of the total revenue line and the total expenses line on a cost-volume-profit graph.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 42

Objective:  3

 

8) If fixed expenses doubled, the break-even point in units would double and the break-even point in dollars would be cut in half.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 42

Objective:  3

 

 

9) An increase in sales price would cause a decrease in the break-even point.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 42

Objective:  3

10) Break-even is the point at which the company achieves its targeted net income.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 42

Objective:  3

 

11) Sales mix is defined as the relative proportions of products that comprise total sales.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 7

 

12) When changes occur in the sales mix, there is no effect on the cost-volume-profit relationships.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 7

 

13) A change in the tax rate will not affect the break-even point.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 8

Objective:  7

 

14) Gross margin is the same as contribution margin.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 9

Objective:  8

 

15) In certain situations, gross margin can equal contribution margin.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 42

Objective:  3

 

16) Activities that affect costs are often called

1. A) cost drivers.
2. B) stages of production.
3. C) fixed activities.
4. D) variable activities.

Answer:  A

Diff: 1      Type: MC      Page Ref: 37

Objective:  1

 

 

17) As the level of activity increases within the relevant range,

1. A) total fixed costs remain unchanged.
2. B) fixed costs per unit increases.
3. C) total variable costs remain unchanged.
4. D) variable costs per unit decreases.

Answer:  A

Diff: 1      Type: MC      Page Ref: 38

Objective:  2

18) As the level of activity increases within the relevant range,

1. A) total fixed costs increases.
2. B) fixed costs per unit decreases.
3. C) total variable costs remain unchanged.
4. D) variable costs per unit decreases.

Answer:  B

Diff: 1      Type: MC      Page Ref: 38

Objective:  2

 

19) As the level of activity decreases within the relevant range,

1. A) total fixed costs increases.
2. B) fixed costs per unit decreases.
3. C) total variable costs decreases.
4. D) variable costs per unit decreases.

Answer:  C

Diff: 1      Type: MC      Page Ref: 38

Objective:  2

 

20) A cost that changes in direct proportion to changes in the cost driver is a

1. A) fixed cost.
2. B) joint cost.
3. C) mixed cost.
4. D) variable cost.

Answer:  D

Diff: 1      Type: MC      Page Ref: 38

Objective:  2

 

21) If variable costs are increasing in total,

1. A) activity is decreasing.
2. B) activity is increasing.
3. C) variable costs per unit are decreasing.
4. D) variable costs per unit are increasing.

Answer:  B

Diff: 1      Type: MC      Page Ref: 38

Objective:  2

 

 

22) As production increases within the relevant range, fixed costs per unit

1. A) decrease.
2. B) increase.
3. C) stay the same.
4. D) cannot be determined with the information given.

Answer:  A

Diff: 1      Type: MC      Page Ref: 38

Objective:  2

23) In defining a cost as fixed, the accountant must consider

1. A) the variable costs.
2. B) the contribution margin.
3. C) the relevant range.
4. D) projected sales revenue.

Answer:  C

Diff: 1      Type: MC      Page Ref: 38

Objective:  2

 

24) The margin of safety

1. A) equals break-even unit sales less actual unit sales.
2. B) shows how far sales can fall below the planned level before losses occur.
3. C) is the sales price minus all the variable expenses.
4. D) is the same as break-even point.

Answer:  B

Diff: 1      Type: MC      Page Ref: 42

Objective:  3

 

25) Contribution margin

1. A) is not the same as marginal income.
2. B) can be calculated as a ratio or per unit.
3. C) equals the sales price minus all the fixed expenses.
4. D) equals total fixed costs minus total variable costs.

Answer:  B

Diff: 1      Type: MC      Page Ref: 46

Objective:  3

 

26) As sales volume in units increases and all other relationships remain constant

1. A) break-even increases.
2. B) break-even decreases.
3. C) total contribution margin decreases.
4. D) total contribution margin increases.

Answer:  D

Diff: 1      Type: MC      Page Ref: 46

Objective:  5

 

 

27) If the sales price per unit is $10.00, the unit contribution margin is $4.00, and total fixed costs are $20,000, the break-even point in units is

1. A) 5,000.
2. B) 1,429.
3. C) 2,000.
4. D) 3,333.

Answer:  A

Diff: 2      Type: MC      Page Ref: 46

Objective:  5

 

28) If the sales price per unit is $17.00, the unit variable cost is $13.50, and the break-even point is 78,000 units, then the total fixed costs are

300. A) $105,300.
301. B) $89,140.
302. C) $273,000.
303. D) $156,000.

Answer:  C

Diff: 2      Type: MC      Page Ref: 46

Objective:  5

 

29) If the sales price per unit is $200.00, the unit variable cost is $148.00, and total fixed costs are $164,000, then the break-even volume in dollar sales rounded to the nearest whole dollar is

769. A) $630,769.
770. B) $221,622.
771. C) $1,640,000.
772. D) $206,308.

Answer:  A

Diff: 2      Type: MC      Page Ref: 46

Objective:  5

 

30) If the sales price per unit is $48.00, the total fixed costs are $67,500, and the break-even volume in dollar sales is $270,000, then the unit variable cost is

4. A) $4.00.
5. B) $6.33.
6. C) $12.00.
7. D) $36.00.

Answer:  D

Diff: 2      Type: MC      Page Ref: 46

Objective:  5

 

 

Reese, Inc. produces pliers. Each pair of pliers sells for $8.00. Variable costs per unit total $5.60 of which $2.50 is for direct materials and $2.10 is for direct labour.

 

31) If total fixed costs are $174,000, then the break-even point in units is

71. A) 31,071.
72. B) 37,826.
73. C) 72,500.
74. D) 21,750.

Answer:  C

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

32) If total fixed costs are $213,000, then the break-even volume in sales dollars is

1. A) $710,000.
2. B) $304,288.
3. C) $370,432.
4. D) $177,500.

Answer:  A

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

33) If the break-even volume in sales dollars is $578,400, then the total fixed costs for the period must be

520. A) $173,520.
521. B) $144,600.
522. C) $206,570.
523. D) $251,747.

Answer:  A

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

34) If total fixed costs are $62,000, contribution margin per unit is $5.00, and targeted after-tax net income is $12,000 with a 40 percent tax rate, how many units must be sold to break even?

1. A) 16,400
2. B) 14,800
3. C) 12,400
4. D) 11,440

Answer:  C

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

35) If targeted after-tax net income is $27,000 with a 40 percent tax rate, contribution margin per unit is $0.80, and total fixed costs are $148,000, how many units must be sold to break even?

1. A) 218,750
2. B) 241,250
3. C) 185,000
4. D) 167,250

Answer:  C

Diff: 2      Type: MC      Page Ref: 49

 

Hampton Company, a producer of computer disks, has the following information:

 

Income tax rate	40 percent
Selling price per unit	$1.00
Variable cost per unit	$0.60
Total fixed costs	$36,000.00

 

36) What is the contribution margin per unit?

1. A) 0.40
2. B) 0.60
3. C) 1.00
4. D) None of the above.

Answer:  A

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

37) What is the contribution-margin ratio?

1. A) 40 percent
2. B) 60 percent
3. C) 100 percent
4. D) None of the above.

Answer:  A

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

38) What is the break-even point in units?

1. A) 36,000
2. B) 90,000
3. C) 60,000
4. D) 54,000

Answer:  B

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

39) What is the break-even point in dollars?

1. A) $54,000
2. B) $36,000
3. C) $90,000
4. D) $60,000

Answer:  C

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

40) The horizontal axis on the cost-volume-profit graph is the

1. A) dollars of cost.
2. B) sales volume.
3. C) dollars of revenue.
4. D) net income.

Answer:  B

Diff: 2      Type: MC      Page Ref: 46

Objective:  5

 

41) The cost-volume-profit graph does NOT show

1. A) the break-even point.
2. B) the profit or loss at any rate of activity.
3. C) the fixed cost per unit.
4. D) sales volume.

Answer:  C

Diff: 2      Type: MC      Page Ref: 46

Objective:  5

 

42) Which of the following is NOT an underlying assumption of the cost-volume-profit graph?

1. A) Expenses are categorized into variable and fixed.
2. B) Sales mix will not be constant.
3. C) Revenues and expenses are linear over the relevant range.
4. D) Efficiency and productivity will be unchanged.

Answer:  B

Diff: 1      Type: MC      Page Ref: 46

Objective:  5

 

43) If fixed expenses were doubled and contribution margin per unit was cut in half, then the break-even point would

1. A) be cut in half.
2. B) double.
3. C) triple.
4. D) quadruple.

Answer:  D

Diff: 2      Type: MC      Page Ref: 38

Objective:  2

 

The following information is for Lyceum, Ltd.:

 

Total fixed costs	$142,500
Variable costs (per unit)	$45
Selling price (per unit)	$70

 

44) If management has a targeted net income of $21,000 (ignore income taxes), then the number of units which must be sold is

36. A) 2,036.
37. B) 2,336.
38. C) 6,540.
39. D) 5,700.

Answer:  C

Diff: 2      Type: MC      Page Ref: 38

Objective:  2

 

45) If management has a targeted net income of $27,000 (ignore income taxes), then sales revenue should be

667. A) $263,667.
668. B) $474,600.
669. C) $108,964.
670. D) $169,500.

Answer:  B

Diff: 2      Type: MC      Page Ref: 49

 

46) The contribution-margin ratio is

64. A) 64.3 percent.
65. B) 55.6 percent.
66. C) 35.7 percent.
67. D) 44.4 percent.

Answer:  C

Diff: 2      Type: MC      Page Ref: 38

Objective:  3

 

47) If total fixed costs increased to $156,750, then break-even volume in dollars would increase by

12. A) 12.3 percent.
13. B) 20.0 percent.
14. C) 34.3 percent.
15. D) 10.0 percent.

Answer:  D

Diff: 2      Type: MC      Page Ref: 38

Objective:  3

 

Assume the following cost information for Quayle Corporation:

 

Total fixed costs	$50,000
Selling price per unit	$90
Variable costs per unit	$50
Tax rate	40 percent

 

48) What volume of sales dollars is required to earn an after-tax net income of $15,000?

1. A) $196,875
2. B) $157,500
3. C) $135,000
4. D) $168,750

Answer:  D

Diff: 2      Type: MC      Page Ref: 53

Objective:  8

 

49) What is the number of units that must be sold to earn an after-tax net income of $25,500?

1. A) 3,700
2. B) 2,313
3. C) 1,594
4. D) 1,063

Answer:  B

Diff: 2      Type: MC      Page Ref: 53

Objective:  8

 

50) What is the break-even point in units?

1. A) 1,000
2. B) 1,250
3. C) 556
4. D) 500

Answer:  B

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

51) If fixed costs increased by 10 percent, and management wanted to maintain the original break-even point, then the selling price per unit would have to be increased to

1. A) $99
2. B) $130
3. C) $94
4. D) $97

Answer:  C

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

52) The change in total results under a new condition, in comparison with some given or known condition, is the definition of

1. A) incremental.
2. B) detrimental.
3. C) conditional.
4. D) comparability.

Answer:  A

Diff: 2      Type: MC      Page Ref: 46

Objective:  5

 

53) Given a break-even point of 44,000 units and a contribution margin per unit of $4.80, the total number of units that must be sold to reach a net profit of $9,048 is

1. A) 45,885 units.
2. B) 44,000 units.
3. C) 1,885 units.
4. D) cannot be determined with the above information.

Answer:  A

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

54) As sales exceed the break-even point, a high contribution-margin percentage

1. A) decreases profits faster than does a small contribution-margin percentage.
2. B) decreases profits at the same rate as a small contribution-margin percentage.
3. C) increases profits at the same rate as a small contribution-margin percentage.
4. D) increases profits faster than does a small contribution-margin percentage.

Answer:  D

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

55) Operating leverage is

1. A) the ratio of net income to sales.
2. B) the ability of a firm to pay off its debts.
3. C) the ratio of fixed costs to variable costs.
4. D) also referred to as working capital.

Answer:  C

Diff: 1      Type: MC      Page Ref: 53

Objective:  8

 

56) In a highly leveraged company,

1. A) fixed costs are low and variable costs are high.
2. B) large changes in sales volume result in small changes in net income.
3. C) there is a higher possibility of net income or net loss and therefore more risk than a low leveraged firm.
4. D) a variation in sales leads to only a small variability in net income.

Answer:  C

Diff: 1      Type: MC      Page Ref: 53

Objective:  8

 

57) If the sales price per unit is $150.00, variable cost per unit is $80.00, targeted net income is $44,000, and total fixed costs are $33,000, the number of units that must be sold is

513. A) 513.
514. B) 1,100.
515. C) 963.
516. D) 629.

Answer:  B

Diff: 2      Type: MC      Page Ref: 49

 

58) If the contribution-margin ratio is .30, targeted net income is $64,000, and targeted sales volume in dollars is $400,000, then total fixed costs are

1. A) $56,000.
2. B) $120,000.
3. C) $36,800.
4. D) $19,200.

Answer:  A

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

59) If targeted sales volume in units is 124,600, total fixed costs are $15,600, and contribution margin per unit is $0.30, then the targeted net income is

380. A) $37,380.
381. B) $32,700.
382. C) $15,600.
383. D) $21,780.

Answer:  D

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

60) The variable-cost ratio is

1. A) all variable costs divided by fixed costs.
2. B) net income divided by all variable costs.
3. C) fixed costs divided by all variable costs.
4. D) all variable costs divided by sales.

Answer:  D

Diff: 1      Type: MC      Page Ref: 38

Objective:  2

 

61) Gross margin is

1. A) the excess of gross profit over operating expenses.
2. B) the excess of sales over the cost of goods sold.
3. C) also referred to as net profit.
4. D) the same as contribution margin.

Answer:  B

Diff: 1      Type: MC      Page Ref: 55

Objective:  9

 

62) The relative proportions or combinations of quantities of products that comprise total sales is called

1. A) sales mix.
2. B) gross margin.
3. C) proportional sales.
4. D) product ratio.

Answer:  A

Diff: 1      Type: MC      Page Ref: 52

Objective:  7

 

63) If the proportions in a sales mix change, the

1. A) contribution margin per unit increases.
2. B) break-even point will remain the same.
3. C) cost-volume-profit relationship also changes.
4. D) net income will not be altered.

Answer:  C

Diff: 1      Type: MC      Page Ref: 52

Objective:  7

 

64) Assuming a constant mix of 3 units of X for every 1 unit of Y, a selling price of $18 for X and $24 for Y, variable costs per unit of $12 for X and $14 for Y, and total fixed costs of $89,600, the break-even point in units would be

1. A) 9,600 units of X and 3,200 units of Y.
2. B) 2,400 units of X and 800 units of Y.
3. C) 3,200 units of X and 9,600 units of Y.
4. D) 1,867 units of X and 622 units of Y.

Answer:  A

Diff: 2      Type: MC      Page Ref: 52

Objective:  7

 

65) If total fixed costs are $62,000, contribution margin per unit is $5.00, and targeted after-tax net income is $12,000 with a 40 percent tax rate, then the number of units that must be sold is

400. A) 16,400.
401. B) 14,800.
402. C) 24,667.
403. D) 11,440.

Answer:  A

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

66) If targeted after-tax net income is $27,000 with a 40 percent tax rate, contribution margin per unit is $0.80, and total fixed costs are $148,000, then the number of units that must be sold is

750. A) 218,750.
751. B) 241,250.
752. C) 160,833.
753. D) 167,250.

Answer:  B

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

67) If total fixed costs are $420,000, contribution margin per unit is $6.75, the tax rate is 40 percent, and the number of units to be sold is 130,000, then the after-tax net income will be

500. A) $457,500.
501. B) $877,500.
502. C) $420,000.
503. D) $274,500.

Answer:  D

Diff: 2      Type: MC      Page Ref: 53

Objective:  8

 

Hampton Company, a producer of computer disks, has the following information:

 

Income tax rate	40 percent
Selling price per unit	$1.00
Variable cost per unit	$0.60
Total fixed costs	$36,000.00

 

68) How many units must be sold to obtain a targeted income before taxes of $6,000?

1. A) 36,000
2. B) 42,000
3. C) 90,000
4. D) 105,000

Answer:  D

Diff: 2      Type: MC      Page Ref: 53

Objective:  8

 

69) How many units must be sold to obtain a targeted after-tax income of $6,000?

1. A) 115,000
2. B) 42,000
3. C) 90,000
4. D) 105,000

Answer:  A

Diff: 2      Type: MC      Page Ref: 53

Objective:  8

 

70) Barrell Company, a producer of computer disks, has the following information:

 

Income tax rate	40 percent
Selling price per unit	$2.00
Variable cost per unit	$1.20
Total fixed costs	$72,000.00

 

What sales volume in dollars is needed to obtain a targeted after-tax income of $12,000?

1. A) $84,000
2. B) $180,000
3. C) $210,000
4. D) $230,000

Answer:  D

Diff: 2      Type: MC      Page Ref: 53

Objective:  8

 

71) The contribution margin ratio equals

1. A) revenue minus variable costs.
2. B) variable costs divided by revenue.
3. C) contribution margin divided by revenue.
4. D) variable costs divided by contribution margin.

Answer:  C

Diff: 1      Type: MC      Page Ref: 46

Objective:  5

 

 

72) The limiting assumptions of CVP analysis include all of the following EXCEPT

1. A) a nonlinear revenue function and a nonlinear cost function.
2. B) that the inventory levels at the beginning of the period are close to the inventory levels at the end of a period.
3. C) selling prices and costs are known with certainty.
4. D) costs can be separated into fixed and variable components.

Answer:  A

Diff: 1      Type: MC      Page Ref: 46

Objective:  5

Use the following information to answer the next question(s).

 

Selling price per unit	$ 100
Variable manufacturing costs per unit	$   20
Fixed manufacturing costs per unit	$   30
Variable selling costs per unit	$   25
Fixed selling costs per unit	$   10
Expected production and sales (in units)	1,000

 

73) Contribution margin per unit is

15. A) $15.
16. B) $50.
17. C) $55.
18. D) $80.

Answer:  C

Diff: 2      Type: MC      Page Ref: 53

Objective:  8

 

74) Breakeven for the product (rounded to the nearest whole unit) is

1. A) 727 units.
2. B) 888 units.
3. C) 1,000 units.
4. D) 1,500.

Answer:  A

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

75) The contribution margin ratio is

1. A) 15%.
2. B) 45%.
3. C) 50%.
4. D) 55%.

Answer:  D

Diff: 2      Type: MC      Page Ref: 53

Objective:  8

 

 

76) If the firm wants to earn $70,000 in before-tax profit, sales revenue must equal

500. A) $60,500.
501. B) $110,000.
502. C) $200,000.
503. D) $244,444.

Answer:  C

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

77) If the firm wants to earn $70,000 in before-tax profit, contribution margin must equal

1. A) $98,000.
2. B) $110,000.
3. C) $125,000.
4. D) $155,000.

Answer:  B

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

78) If the tax rate is 40 percent, how many units must be sold to earn an after-tax profit of $60,000?

1. A) 4,000
2. B) 1,500
3. C) 2,640
4. D) 2,546

Answer:  D

Diff: 2      Type: MC      Page Ref: 42

Objective:  3

 

79) The manner in which the activities of an organization affect its costs.

Answer:  Cost behaviour

Diff: 1      Type: SA      Page Ref: 37

Objective:  1

 

80) Activities that affect costs.

Answer:  Cost drivers

Diff: 1      Type: SA      Page Ref: 37

Objective:  1

 

81) A cost that changes in direct proportion to changes in the cost driver.

Answer:  Variable cost

Diff: 1      Type: SA      Page Ref: 37

Objective:  1

 

82) A cost that is not immediately affected by changes in the cost driver.

Answer:  Fixed cost

Diff: 2      Type: SA      Page Ref: 37

Objective:  1

 

 

83) The boundaries of cost driver activity within which a specific relationship between costs and the cost driver is valid.

Answer:  Relevant range

Diff: 1      Type: SA      Page Ref: 38

Objective:  2

 

84) The study of the effects of output volume on revenue, expenses, and net income.

Answer:  Cost-volume-profit analysis

Diff: 1      Type: SA      Page Ref: 46

Objective:  3

85) The level of sales at which revenue equals expenses, and net income is zero.

Answer:  Break-even point

Diff: 1      Type: SA      Page Ref: 42

Objective:  3

 

86) The sales price minus all the variable expenses per unit.

Answer:  Contribution margin

Diff: 1      Type: SA      Page Ref: 42

Objective:  3

 

87) A firm’s ratio of fixed and variable costs.

Answer:  Operating leverage

Diff: 1      Type: SA      Page Ref: 42

Objective:  3

 

88) The relative proportions of quantities of products that comprise total sales.

Answer:  Sales mix

Diff: 1      Type: SA      Page Ref: 59

Objective:  7

 

89) The Alexander Company produces one type of machine.  The following information is available for your review:

 

Selling price per unit                   $4,800

Variable costs per unit                $3,600

Total fixed costs                       $108,000

 

Required:

1. Compute break-even point in units.
2. Compute break-even volume in dollars.
3. Compute the margin of safety assuming planned unit sales of 120.

Answer:

1. $108,000/($4,800 – $3,600) = 90 units
2. 90 units × $4,800/unit = $432,000
3. 120 units – 90 units = 30 units

Diff: 3      Type: ES      Page Ref: 42

Objective:  3

 

90) Given the following information for Baugh Company:

 

Total fixed costs                          $78,000

Unit variable costs                             $24

Unit selling price                                $36

 

Required:

1. Compute the contribution margin per unit.
2. Compute the contribution-margin ratio.
3. Compute the break-even point in units.
4. Compute the break-even volume in dollars.

Answer:

1. $36 – $24 = $12 per unit
2. $12/$36 = 0.333
3. $78,000/$12 = 6,500 units
4. 6,500 units × $36 = $234,000

Diff: 3      Type: ES      Page Ref: 42

Objective:  3

 

91) Thornburg Corporation manufactures lamps.  Given the following financial data:

 

Total fixed costs                          $25,000

Variable costs per unit                        $8

Selling price per unit                         $13

 

Required:

1. Compute the contribution margin per unit.
2. Compute the break-even point in units.
3. Compute the break-even volume in dollars.

Answer:

1. $13 – $8 = $5 per unit
2. $25,000/$5 = 5,000 units
3. 5,000 units × $13 = $65,000

Diff: 3      Type: ES      Page Ref: 42

Objective:  3

 

Chapter 4   Cost Management Systems

 

1) Cost accounting is that part of the accounting system that measures costs for the purposes of management decision making and financial reporting.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

2) Cost accounting system typically includes two processes, cost accumulation and cost determination.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

3) Direct costs can be identified specifically and exclusively with a given cost objective in an economically feasible way.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

4) Indirect costs can be identified specifically with a given cost objective in an uneconomical way.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

5) The three major categories of manufacturing costs are direct materials, direct labour and factory overhead.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

6) Prime costs include direct labour and factory overhead.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

7) Product costs are identified with goods produced or purchased for resale.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

8) Period costs are inventoriable and are expensed when the inventory is sold.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

9) A manufacturer has three inventories as compared to a merchandiser, which has only one.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 124

Objective:  5

 

10) The term expense is used to describe both an inventory expenditure and a cost.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

11) The contribution approach is a method of internal reporting that emphasizes the distinction between variable and fixed costs for the purpose of better decision making.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

12) In the contribution approach, all factory overhead is considered to be product costs that are expensed as incurred.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

13) Variable costing is also referred to as the contribution approach.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 128

 

14) Fixed manufacturing overhead is excluded from the cost of products under absorption costing.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 124

Objective:  5

 

15) Absorption costing is more widely used than variable costing.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

16) In variable costing, inventories are valued at standard variable costs.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

17) A production-volume variance is calculated as the applied volume minus the actual volume multiplied by the actual-overhead rate.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

18) Absorption costing separates costs into manufacturing and non-manufacturing categories.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

19) There is no difference between variable-costing and absorption-costing income if the inventory level does not change.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

20) Absorption-costing income is not affected by production volume.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

21) The part of the accounting system that measures costs for the purposes of management decision making and financial reporting is referred to as

1. A) period costing.
2. B) cost accounting.
3. C) system accounting.
4. D) product costing.

Answer:  B

Diff: 2      Type: MC      Page Ref: 120

Objective:  1

 

22) Which of the following statements is NOT true?

1. A) A cost may be defined as a sacrifice or giving up of resources for a particular purpose.
2. B) Costs are frequently measured by the monetary units that must be paid for goods and services.
3. C) Costs are shown on the income statement.
4. D) Costs are initially recorded in elementary form.

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

23) An activity for which a separate measurement of costs is desired is called a

1. A) cost objective.
2. B) period cost.
3. C) product cost.
4. D) cost accumulation system.

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

24) Which of the following would NOT be an example of a cost objective?

1. A) A department
2. B) A product
3. C) A territory
4. D) A parcel of land

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

25) A cost accumulation system typically includes two processes:

1. A) cost accumulation and cost allocation.
2. B) cost objectives and cost accounting.
3. C) cost accumulation and cost accounting.
4. D) cost allocation and cost application.

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

26) Which of the following statements is TRUE?

1. A) Indirect costs can be identified specifically with a given cost objective in an economically feasible way.
2. B) Managers prefer to classify costs as indirect rather than direct.
3. C) A cost may simultaneously be direct and indirect.
4. D) Direct costs cannot be identified specifically with a given cost objective in an economically feasible way.

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

27) Which of the following is NOT a factor in determining whether a cost is direct or indirect?

1. A) The cost can be identified specifically with a given cost objective.
2. B) The identification of the cost is economically feasible.
3. C) The cost objective used.
4. D) The manager’s preference.

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

28) The three major categories of manufacturing costs are

1. A) prime costs, direct materials and factory overhead.
2. B) direct labour, factory overhead and direct materials.
3. C) indirect labour, indirect materials and conversion costs.
4. D) prime costs, period costs, and product costs.

Answer:  B

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

29) All costs other than direct material and direct labour that are associated with the manufacturing process are called

1. A) prime costs.
2. B) factory-overhead costs.
3. C) conversion costs.
4. D) product costs.

Answer:  B

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

30) Which of the following would probably NOT be considered a direct material?

1. A) Lumber
2. B) Steel
3. C) Glue
4. D) Subassemblies

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

31) An example of direct labour would be

1. A) janitor’s wages.
2. B) factory foreman’s wages.
3. C) machine operator’s wages.
4. D) plant guard’s wages.

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

32) Factory overhead includes

1. A) direct materials and direct labour.
2. B) prime costs.
3. C) indirect and direct labour.
4. D) indirect labour and indirect materials.

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

33) Which of the following is NOT a factory overhead cost?

1. A) Wages of machine operators
2. B) Wages of supervisors
3. C) Amortization of the machinery
4. D) Factory utilities

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

34) Prime costs include

1. A) direct labour and factory overhead.
2. B) direct materials and indirect labour.
3. C) factory overhead and indirect materials.
4. D) direct labour and direct materials.

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

35) The sum of direct labour and factory overhead costs is equal to

1. A) conversion costs.
2. B) prime costs.
3. C) period costs.
4. D) indirect costs.

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

36) Manufacturing costs are eventually reported on

1. A) the income statement only.
2. B) the balance sheet only.
3. C) the income statement as cost of goods sold.
4. D) the balance sheet as cost of goods sold.

Answer:  C

Diff: 1      Type: MC      Page Ref: 128

 

37) A period cost

1. A) is identified with goods produced or purchased for resale.
2. B) is accumulated in work-in-
3. C) is shown on the balance sheet.
4. D) is expensed as incurred.

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

38) Costs identified with goods produced or purchased for resale are called

1. A) product costs.
2. B) period costs.
3. C) prime costs.
4. D) conversion costs.

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

39) Which of the following statements is FALSE?

1. A) Product costs are inventoriable costs.
2. B) Product costs are automatically deducted as expenses during the current period.
3. C) Product costs become expenses when the inventory is sold.
4. D) Product costs show up on the income statement in cost of goods sold.

Answer:  B

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

40) Selling and general administrative costs are

1. A) period costs.
2. B) product costs.
3. C) prime costs.
4. D) conversion costs.

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

41) An example of a product cost is

1. A) advertising expense.
2. B) amortization on office equipment.
3. C) indirect materials.
4. D) store supplies expense.

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

42) Which of the following is NOT a period cost?

1. A) Wages of clerical staff
2. B) Advertising expense
3. C) Factory supplies used
4. D) Amortization on salesperson’s car

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

43) Which of the following is NOT a product cost?

1. A) Indirect labour
2. B) Raw materials used
3. C) Insurance on the plant
4. D) Advertising expense

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

44) Which of the following is NOT an inventory account?

1. A) Direct labour
2. B) Direct materials
3. C) Work in process
4. D) Finished goods

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

45) How many inventory accounts does a manufacturer usually have?

1. A) Three
2. B) Two
3. C) One
4. D) None

Answer:  A

Diff: 1      Type: MC      Page Ref: 124

Objective:  5

 

46) How many inventory accounts does a merchandiser usually have?

1. A) One
2. B) Two
3. C) Three
4. D) Four

Answer:  A

Diff: 1      Type: MC      Page Ref: 124

Objective:  5

 

47) Which of the following accounts would NOT be included in the current asset section of a manufacturer’s balance sheet?

1. A) Work in process inventory
2. B) Merchandise inventory
3. C) Finished goods inventory
4. D) Direct materials inventory

Answer:  B

Diff: 1      Type: MC      Page Ref: 124

Objective:  5

 

48) Which of the following accounts would appear in the current asset section of a merchandiser’s balance sheet?

1. A) Direct materials inventory
2. B) Finished goods inventory
3. C) Merchandise inventory
4. D) Work in process inventory

Answer:  C

Diff: 1      Type: MC      Page Ref: 124

Objective:  5

 

49) The cost of goods purchased line on the income statement of a retailer is the equivalent to which line on a manufacturer’s income statement?

1. A) Cost of raw materials purchased
2. B) Cost of goods sold
3. C) Cost of goods available for sale
4. D) Cost of goods manufactured

Answer:  D

Diff: 1      Type: MC      Page Ref: 128

 

50) Which of the following would appear on an income statement of both a retailer and a manufacturer?

1. A) Direct labour
2. B) Selling expenses
3. C) Beginning finished goods inventory
4. D) Factory overhead

Answer:  B

Diff: 1      Type: MC      Page Ref: 124

Objective:  5

 

51) Which of the following methods is required for external financial reporting?

1. A) Contribution approach
2. B) Variable costing
3. C) Direct costing
4. D) Absorption approach

Answer:  D

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

52) When using the absorption approach to costing,

1. A) all variable costs are inventoriable.
2. B) all indirect manufacturing costs are inventoriable.
3. C) all fixed costs are treated as period costs.
4. D) all direct manufacturing costs are treated as period costs.

Answer:  B

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

53) Absorption costing classifies costs as either product costs or

1. A) period costs.
2. B) fixed costs.
3. C) prime costs.
4. D) conversion costs.

Answer:  A

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

54) Which of the following terms appears on an income statement prepared using the contribution approach but NOT on an income statement using absorption costing?

1. A) Operating income
2. B) Gross profit
3. C) Contribution margin
4. D) Sales

Answer:  C

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

55) When using the contribution approach to costing,

1. A) all factory overhead is inventoriable.
2. B) all indirect manufacturing costs are inventoriable.
3. C) all selling expenses are deducted from the contribution margin.
4. D) all fixed costs are treated as period costs.

Answer:  D

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

56) Absorption costing is also known as all of the following EXCEPT

1. A) direct costing.
2. B) full costing.
3. C) traditional approach.
4. D) functional approach.

Answer:  A

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

57) Variable costing regards fixed manufacturing overhead as

1. A) an unexpired cost.
2. B) an inventoriable cost.
3. C) a charge against sales.
4. D) a product cost.

Answer:  C

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

58) Variable costing is commonly called

1. A) full costing.
2. B) direct costing.
3. C) traditional costing.
4. D) absorption costing.

Answer:  B

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

59) All of the following are inventoriable costs under variable costing EXCEPT

1. A) direct materials.
2. B) direct labour.
3. C) variable manufacturing overhead.
4. D) fixed manufacturing overhead.

Answer:  D

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

60) The only difference between variable and absorption costing is the accounting for

1. A) direct labour.
2. B) fixed manufacturing overhead.
3. C) direct materials.
4. D) variable manufacturing overhead.

Answer:  B

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

61) Which format does the CICA Handbook advocate for reporting income?

1. A) Direct costing
2. B) Variable costing
3. C) Indirect costing
4. D) Full costing

Answer:  D

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

62) All manufacturing costs are assigned to the product under which method of product costing?

1. A) Direct costing
2. B) Variable costing
3. C) Absorption costing
4. D) Fixed costing

Answer:  C

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

DeJager Company reported the following information about the production and sales of its only product:

 

Direct materials used	$32,000
Direct labour	$20,000
Variable factory overhead	$12,000
Fixed factory overhead	$16,000
Variable selling and administrative expenses	$  4,000
Fixed selling and administrative expenses	$  6,000
Beginning inventories	none
Ending inventories:
Direct materials	-0-
WIP	-0-
Finished goods	600 units
Sales ($45 per unit)	$63,000

 

63) The cost of producing one unit of product using variable costing would be

32. A) $32.
33. B) $40.
34. C) $45.
35. D) $26.

Answer:  A

Diff: 2      Type: MC      Page Ref: 131

Objective:  7

 

64) The cost of producing one unit of product using absorption costing would be

32. A) $32.
33. B) $26.
34. C) $45.
35. D) $40.

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

65) The ending inventory under variable costing would be

1. A) $24,000.
2. B) $27,000.
3. C) $19,200.
4. D) $15,600.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

 

66) The ending inventory under absorption costing would be

1. A) $27,000.
2. B) $24,000.
3. C) $15,600.
4. D) $19,200.

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

Schultz Company reported the following information about the production and sales of its only product:

 

Direct materials used	$64,000
Direct labour	$40,000
Variable factory overhead	$24,000
Fixed factory overhead	$32,000
Variable selling and administrative expenses	$  8,000
Fixed selling and administrative expenses	$12,000
Beginning inventories	none
Ending inventories:
Direct materials	-0-
WIP	-0-
Finished goods	600 units
Sales ($90 per unit)	$126,000

 

67) The cost of producing one unit of product using variable costing would be

64. A) $64.
65. B) $80.
66. C) $90.
67. D) $52.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

68) The cost of producing one unit of product using absorption costing would be

64. A) $64.
65. B) $52.
66. C) $90.
67. D) $80.

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

 

69) The ending inventory under variable costing would be

1. A) $48,000.
2. B) $54,000.
3. C) $38,400.
4. D) $31,200.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

70) The ending inventory under absorption costing would be

1. A) $54,000.
2. B) $48,000.
3. C) $31,200.
4. D) $38,400.

Answer:  B

Diff: 1      Type: MC      Page Ref: 133

Objective:  9

DeJager Company reported the following information about the production and sales of its only product:

 

Direct materials used	$32,000
Direct labour	$20,000
Variable factory overhead	$12,000
Fixed factory overhead	$16,000
Variable selling and administrative expenses	$  4,000
Fixed selling and administrative expenses	$  6,000
Beginning inventories	none
Ending inventories:
Direct materials	-0-
WIP	-0-
Finished goods	600 units
Sales ($45 per unit)	$63,000

 

71) The cost of goods sold under variable costing would be

1. A) $56,000.
2. B) $63,000.
3. C) $44,800.
4. D) $36,400.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

 

72) The contribution margin under variable costing would be

200. A) $18,200.
201. B) $14,200.
202. C) $ 3,000.
203. D) $22,600.

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

73) The operating income (loss) under variable costing would be

200. A) $14,200.
201. B) $ 8,200.
202. C) $(3,000).
203. D) $(7,800).

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

Schultz Company reported the following information about the production and sales of its only product:

 

Direct materials used	$64,000
Direct labour	$40,000
Variable factory overhead	$24,000
Fixed factory overhead	$32,000
Variable selling and administrative expenses	$  8,000
Fixed selling and administrative expenses	$12,000
Beginning inventories	none
Ending inventories:
Direct materials	-0-
WIP	-0-
Finished goods	600 units
Sales ($90 per unit)	$126,000

 

74) The cost of goods sold under variable costing would be

1. A) $112,000.
2. B) $126,000.
3. C) $ 89,600.
4. D) $ 72,800.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

 

75) The contribution margin under variable costing would be

400. A) $36,400.
401. B) $28,400.
402. C) $ 6,000.
403. D) $45,200.

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

76) The operating income (loss) under variable costing would be

400. A) $ 28,400.
401. B) $ 16,400.
402. C) $( 6,000).
403. D) $(15,600).

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

A company has the following information:

 

Beginning inventories	none
Raw materials used	$  50,000
Sales ($130 per unit)	$156,000
Direct labour	$  84,000
Variable factory overhead	$  34,000
Fixed factory overhead	unknown
Variable selling and administrative	$    6,000
Fixed selling and administrative	$  10,000
Gross profit	$  60,000
Contribution margin	unknown
Ending inventories
Raw materials	$  14,000
WIP	none
Finished goods	1,200 units

 

77) Raw materials purchased during the current period were

1. A) $50,000.
2. B) $64,000.
3. C) $36,000.
4. D) not determinable.

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

 

78) The ending inventory under variable costing would be

1. A) $96,000.
2. B) $168,000.
3. C) $84,000.
4. D) $192,000.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

79) The cost of goods sold under variable costing would be

1. A) $84,000.
2. B) $192,000.
3. C) $96,000.
4. D) $168,000.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

80) The total contribution margin under variable costing would be

1. A) $42,000.
2. B) $14,000.
3. C) $66,000.
4. D) $72,000.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

81) The net income under variable costing would be

1. A) $32,000.
2. B) $44,000.
3. C) $50,000.
4. D) $66,000.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

82) Under variable costing, which manufacturing cost is expensed as a period cost?

1. A) Fixed manufacturing overhead.
2. B) Direct materials.
3. C) Variable manufacturing overhead.
4. D) Direct labour.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

 

83) In variable costing, costs are separated into the major categories of

1. A) manufacturing and non-
2. B) manufacturing and fixed.
3. C) fixed and variable.
4. D) variable and non-

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

84) In variable costing, revenue less all variable costs is

1. A) gross margin.
2. B) operating income.
3. C) contribution margin.
4. D) net income.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

A company has the following information:

 

Beginning inventories	none
Raw materials used	$  50,000
Sales ($130 per unit)	$156,000
Direct labour	$  84,000
Variable factory overhead	$  34,000
Fixed factory overhead	unknown
Variable selling and administrative	$    6,000
Fixed selling and administrative	$  10,000
Gross profit	$  60,000
Contribution margin	unknown
Ending inventories
Raw materials	$  14,000
WIP	none
Finished goods	1,200 units

 

85) How much factory overhead is included in the ending inventory under absorption costing?

1. A) $24,000
2. B) $12,000
3. C) $16,800
4. D) $-0-

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

 

DeJager Company reported the following information about the production and sales of its only product:

 

Direct materials used	$32,000
Direct labour	$20,000
Variable factory overhead	$12,000
Fixed factory overhead	$16,000
Variable selling and administrative expenses	$  4,000
Fixed selling and administrative expenses	$  6,000
Beginning inventories	none
Ending inventories:
Direct materials	-0-
WIP	-0-
Finished goods	600 units
Sales ($45 per unit)	$63,000

 

86) The cost of goods sold under absorption costing would be

1. A) $56,000.
2. B) $63,000.
3. C) $44,800.
4. D) $36,400.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

87) The gross profit under absorption costing would be

600. A) $26,600.
601. B) $18,200.
602. C) $ -0-.
603. D) $ 7,000.

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

88) The operating income (loss) under absorption costing would be

600. A) $ 16,600.
601. B) $ 8,200.
602. C) $( 3,000).
603. D) $(10,000).

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  9