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True/False Questions
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
4. The sale of used equipment at book value for cash will increase earnings per
share.
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 2
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Easy
6. The dividend payout ratio divided by the dividend yield ratio equals the priceearnings ratio.
Ans: True
AACSB: Analytic
AICPA FN: Reporting
LO: 2
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 2
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 2
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Hard
10. When a retailing company purchases inventory, the book value per share of
the company increases.
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 2
11. If a company's acid-test ratio increases, its current ratio will also increase.
Ans: True
AACSB: Analytic
AICPA FN: Reporting
LO: 3
12. Assuming a current ratio greater than 1, acquiring land by issuing more of the
company's common stock will increase the current ratio.
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 3
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 3
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Medium
15. Working capital is computed by subtracting long-term liabilities from longterm assets.
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Medium
B)
C)
D)
Ans: C
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
Source: CMA, adapted
current ratio
B)
acid-test ratio
C)
price-earnings ratio
D)
Ans: C
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2,3,4
Level: Medium
18. Most stockholders would ordinarily be least concerned with which of the
following ratios:
A)
B)
C)
price-earnings ratio.
D)
acid-test ratio.
Ans: D
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2,3
Level: Easy
19. What effect will the issuance of common stock for cash at year-end have on
the following ratios?
A)
B)
C)
D)
Debt-to-Equity Ratio
Increase
Decrease
Increase
Decrease
Ans: D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2,4
Level: Medium
20. The market price of Friden Company's common stock increased from $15 to
$18. Earnings per share of common stock remained unchanged. The
company's price-earnings ratio would:
A)
increase.
B)
decrease.
C)
remain unchanged.
D)
impossible to determine.
Ans: A
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Easy
B)
C)
D)
Cannot be determined.
Ans: C
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Medium
22. Clark Company issued bonds with an interest rate of 10%. The company's
increase.
B)
decrease.
C)
remain unchanged.
D)
cannot be determined.
Ans: A
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Easy
23. Which of the following transactions could generate positive financial leverage
for a corporation?
A)
B)
C)
D)
Ans: D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Hard
24. Book value per common share is the amount of stockholders' equity per
outstanding share of common stock. Which one of the following statements
about book value per common share is most correct?
A)
Market price per common share usually approximates book value per
common share.
B)
C)
A market price per common share that is greater than book value per
common share is an indication of an overvalued stock.
D)
Book value per common share is the amount that would be paid to
stockholders if the company were sold to another company.
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Easy
Source: CMA, adapted
25. The ratio of total cash, marketable securities, accounts receivable, and shortterm notes to current liabilities is:
A)
B)
C)
D)
working capital.
Ans: C
AACSB: Analytic
LO: 3,4
Level: Easy
26. A company has just converted a long-term note receivable into a short-term
note receivable. The company's acid-test and current ratios are both greater
than 1. This transaction will:
A)
B)
C)
D)
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Hard
27. Broca Corporation has a current ratio of 2.5. Which of the following
transactions will increase Broca's current ratio?
A)
B)
C)
D)
Ans: C
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Hard
28. Allen Company's average collection period for accounts receivable was 25
days in year 1, but increased to 40 days in year 2. Which of the following
would most likely be the cause of this change:
A)
B)
C)
D)
Ans: C
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Hard
29. Wolbers Company wrote off $100,000 in obsolete inventory. The company's
increase.
B)
decrease.
C)
remain unchanged.
D)
impossible to determine.
Ans: A
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Medium
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
2. The reluctance of managers to lay off employees when activity declines in the
short-run leads to an increase in the ratio of variable to fixed costs.
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Hard
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Hard
5. Fixed costs remain constant in total, but vary inversely with changes in
activity when expressed on a per unit basis.
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
7. The following costs are all examples of committed fixed costs: depreciation
on buildings, advertising, insurance, and management development and
training.
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
8. The time frame in which discretionary fixed costs are controllable is usually
much shorter than the time frame for committed fixed costs.
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3,5
Level: Easy
10. A major problem with the high-low method of cost estimation is that some
data are omitted from the analysis.
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Easy
11. The high and low points used in the high-low method tend to be unusual and
therefore the cost formula may not accurately represent all of the data.
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Easy
12. Contribution margin and gross margin mean the same thing.
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement
LO: 4
Level: Medium
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 4
Level: Easy
14. The traditional income statement organizes costs on the basis of cost
behavior.
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
LO: 4
Level: Easy
15. It is necessary to break mixed costs into their variable and fixed cost
components in order to construct an income statement using the contribution
approach.
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 4
Level: Easy
16. A is a fixed cost; B is a variable cost. During the current year the level of
activity has decreased but is still within the relevant range. We would expect
that:
A)
B)
C)
D)
Ans: D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
17. Which costs will change with an increase in activity within the relevant range?
A)
B)
C)
D)
Ans: C
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
18. Salaries of accounts receivable clerks when one clerical worker is needed for
every 750 accounts receivable is an example of a:
A)
fixed cost
B)
step-variable cost
C)
mixed cost
D)
curvilinear cost
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
fixed cost
B)
mixed cost
C)
step-variable cost
D)
variable cost
Ans: D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
20. For an automobile manufacturer, the cost of a driver's side air bag purchased
from a supplier and installed in every automobile would best be described as
a:
A)
fixed cost.
B)
mixed cost.
C)
step-variable cost.
D)
variable cost.
Ans: D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
21. With respect to a fixed cost, an increase in the activity level within the
relevant range results in:
A)
B)
C)
D)
Ans: D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
22. In the standard cost formula Y = a + bX, what does the Y represent?
A)
total cost
B)
C)
D)
Ans: A
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
23. In the standard cost formula Y = a + bX, what does the a represent?
A)
total cost
B)
C)
D)
Ans: B
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
24. In the standard cost formula Y = a + bX, what does the b represent?
A)
total cost
B)
C)
D)
Ans: D
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
25. In the standard cost formula Y = a + bX, what does the X represent?
A)
total cost
B)
C)
units of activity
D)
Ans: C
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
26. Which of the following would usually be considered a discretionary fixed cost
for a soft drink bottling company?
A)
B)
C)
D)
Ans: A
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
B)
Only two data points are used and the rest are ignored in drawing the
scattergraph.
C)
Different people will have different answers even though they are
analyzing the same set of data.
D)
Ans: C
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Easy
28. Which of the following statements is true when referring to the high-low
method of cost analysis?
A)
B)
C)
In essence, the high-low method draws a straight line through two data
points.
D)
Ans: C
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Easy
fixed expenses
B)
variable expenses
C)
D)
Ans: B
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement
LO: 4
Level: Easy
A)
B)
C)
D)
Traditional
Approach
Yes
Yes
No
No
Contribution
Approach
Yes
No
Yes
No
Ans: B
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
LO: 4
Level: Medium
fits a regression line by minimizing the sum of the squared errors from
the regression line.
B)
C)
can be used only if the fixed cost element is larger than the variable
cost element.
D)
Ans: A
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 5
Level: Medium
B)
C)
D)
Ans: B
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 5
Level: Medium
MULTIPLE CHOICE QUESTIONS
A. Direct materials.
B. Direct labor.
C. Indirect materials.
D. Insurance on the manufacturing plant.
E. Sales commissions.
A. Legal costs.
B. Public relations costs.
C. Sales commissions.
D. Wages of assembly-line workers.
E. The salary of a company's chief financial officer (CFO).
10. Which of the following entities would most likely have raw materials, work in
process, and finished goods?
A. Exxon Corporation.
B. Macy's Department Store.
C. Wendy's.
D. Southwest Airlines.
E. Columbia University.
11. Selling and administrative expenses would likely appear on the balance sheet
of:
A. The Gap.
B. Texas Instruments.
C. Turner Broadcasting System.
D. all of the above firms.
E. none of the above firms.
12. Which of the following inventories would a discount retailer such as Wal-Mart
report as an asset?
A. Raw materials.
B. Work in process.
C. Finished goods.
D. Merchandise inventory.
E. All of the above.
13. Which of the following inventories would a company ordinarily hold for sale?
A. Raw materials.
B. Work in process.
C. Finished goods.
D. Raw materials and finished goods.
E. Work in process and finished goods.
14. Zeno Corporation engages in mass customization and direct sales, the latter
by accepting customer orders over the Internet. As a result, Zeno:
A. would probably begin the manufacturing process upon receipt of a
customer's order.
B. would typically have fairly low inventory levels for the amount of sales
revenue generated.
C. would typically have fairly high inventory levels for the amount of sales
revenue generated.
D. would likely find choices "A" and "B" to be applicable.
E. would likely find choices "A" and "C" to be applicable.
16. Midwest Motors manufactures automobiles. Which of the following would not
be classified as direct materials by the company?
A. Sheet metal used in the automobile's body.
B. Tires.
C. Interior leather.
D. CD player.
E. Wheel lubricant.
19. Which of the following employees would not be classified as indirect labor?
A. Custodian.
B. Salesperson.
C. Assembler of wooden furniture.
D. Plant security guard.
E. Choices "B" and "C."
22. The accounting records of Westcott Company revealed the following costs:
Factory utilities
35,000
Wages of assembly-line personnel
170,00
0
Customer entertainment
45,000
19,000
51,000
110,00
0
27. In a manufacturing company, the cost of goods completed during the period
would include which of the following elements?
A. Raw materials used.
B. Beginning finished goods inventory.
C. Marketing costs.
D. Depreciation of delivery trucks.
E. More than one of the above.
28. Which of the following equations is used to calculate cost of goods sold
during the period?
A. Beginning finished goods + cost of goods manufactured + ending finished
goods.
B. Beginning finished goods - ending finished goods.
C. Beginning finished goods + cost of goods manufactured.
D. Beginning finished goods + cost of goods manufactured - ending finished
goods.
E. Beginning finished goods + ending finished goods - cost of goods
manufactured.
30. Fort Walton Industries began July with a finished-goods inventory of $48,000.
The finished-goods inventory at the end of July was $41,000 and the cost of
goods sold during the month was $125,000. The cost of goods manufactured
during July was:
A. $77,000.
B. $84,000.
C. $118,000.
D. $132,000.
E. some other amount.
$
60,000
Direct labor
125,000
Manufacturing overhead
360,000
50,000
189,000
76,000
140,000
$530,00
0
56,000
78,000
146,000
123,000
A. $508,000.
B. $529,000.
C. $531,000.
D. $553,000.
E. some other amount.
34. For the year just ended, Cole Corporation's manufacturing costs (raw
materials used, direct labor, and manufacturing overhead) totaled
$1,500,000. Beginning and ending work-in-process inventories were $60,000
and $90,000, respectively. Cole's balance sheet also revealed respective
beginning and ending finished-goods inventories of $250,000 and $180,000.
On the basis of this information, how much would the company report as cost
of goods manufactured (CGM) and cost of goods sold (CGS)?
A. CGM, $1,430,000; CGS, $1,460,000.
B. CGM, $1,470,000; CGS, $1,540,000.
C. CGM, $1,530,000; CGS, $1,460,000.
D. CGM, $1,570,000; CGS, $1,540,000.
E. Some other amounts.
35. Leggio Industries reported the following data for the year just ended: sales
revenue, $950,000; cost of goods sold, $420,000; cost of goods
manufactured, $330,000; and selling and administrative expenses, $170,000.
Leggio's gross margin would be:
A. $30,000.
B. $200,000.
C. $360,000.
D. $530,000.
E. $620,000.
36. Pumpkin Enterprises began operations on January 1, 20x1, with all of its
activities conducted from a single facility. The company's accountant
concluded that the year's building depreciation should be allocated as
follows: selling activities, 20%; administrative activities, 35%; and
manufacturing activities, 45%. If Pumpkin sold 60% of 20x1 production
during that year, what percentage of the depreciation would appear (either
directly or indirectly) on the 20x1 income statement?
A. 27%.
B. 45%.
C. 55%.
D. 82%.
E. 100%.
38. Which of the following would likely be a cost driver for the amount of direct
materials used?
A. The number of units sold.
B. The number of direct labor hours worked.
C. The number of machine hours worked.
39. The choices below depict five costs of Benton Corporation and a possible
driver for each cost. Which of these choices likely contains an inappropriate
cost driver?
A. Gasoline consumed; number of miles driven.
B. Manufacturing overhead incurred in a heavily automated facility; direct
labor hours.
C. Sales commissions; gross sales revenue.
D. Building maintenance cost; building square footage.
E. Personnel department cost; number of employees.
46. The variable costs per unit are $4 when a company produces 10,000 units of
product. What are the variable costs per unit when 8,000 units are
produced?
A. $4.00.
B. $4.50.
C. $5.00.
D. $5.50.
E. Some other amount.
47. The fixed costs per unit are $10 when a company produces 10,000 units of
product. What are the fixed costs per unit when 12,500 units are produced?
A. $4.
B. $6.
C. $8.
D. $10.
E. Some other amount.
48. Total costs are $120,000 when 10,000 units are produced; of this amount,
variable costs are $48,000. What are the total costs when 12,000 units are
produced?
A. $57,600.
B. $72,000.
C. $120,000.
D. $129,600.
E. $144,000.
49. Baxter Company, which pays a 10% commission to its salespeople, reported
sales revenues of $210,000 for the period just ended. If fixed and variable
sales expenses totaled $56,000, what would these expenses total at sales of
$168,000?
A. $16,800.
B. $35,000.
C. $44,800.
D. $51,800.
E. Some other amount.
51. Costs that can be easily traced to a specific department are called:
A. direct costs.
B. indirect costs.
C. product costs.
D. manufacturing costs.
E. processing costs.
52. Which of the following would not be considered a direct cost with respect to
the service department of a new car dealership?
A. Wages of repair techniques.
B. Property taxes paid by the dealership.
54. The salary that is sacrificed by a college student who pursues a degree full
time is a(n):
A. sunk cost.
B. out-of-pocket cost.
C. opportunity cost.
D. differential cost.
E. marginal cost.
55. The tuition that will be paid next semester by a college student who pursues
a degree is a(n):
A. sunk cost.
B. out-of-pocket cost.
C. indirect cost.
D. average cost.
E. marginal cost.
56. Which of the following costs should be ignored when choosing among
alternatives?
A. Opportunity costs.
B. Sunk costs.
C. Out-of-pocket costs.
D. Differential costs.
E. None of the above.
57. If the total cost of alternative A is $50,000 and the total cost of alternative B
Wee Care is a nursery school for pre-kindergarten children. The school has
determined that the following biweekly revenues and costs occur at different levels
of enrollment:
Number of
Students
Enrolled
Total Revenue
Total Costs
10
$3,000
$2,100
15
4,500
2,700
16
4,800
2,800
20
6,000
3,200
21
6,300
3,255
58. The marginal cost when the twenty-first student enrolls in the school is:
A. $55.
B. $155.
C. $300.
D. $3,045.
E. $3,255.
59. The average cost per student when 16 students enroll in the school is:
A. $100.
B. $125.
C. $175.
D. $300.
E. $400.
60. The costs that follow all have applicability for a manufacturing enterprise. Which of
the choices listed correctly denotes the costs applicability for a service provider?
Period Cost
Uncontrollable Cost
Opportunity Cost
Applicable
Applicable
Not applicable
Applicable
Not applicable
Applicable
Applicable
Applicable
Applicable
Not applicable
Applicable
Applicable
Not applicable
Applicable
Not applicable
1. Under variable costing, only variable production costs are treated as product
costs.
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
2. Under variable costing, variable selling and administrative costs are included
in product costs.
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
6. When the number of units in work in process and finished goods inventories
increase, absorption costing net operating income will typically be greater
than variable costing net operating income.
Ans: True
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2,3
Level: Easy
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 2
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Medium
9. When production exceeds sales for the period, absorption costing net
operating income will exceed variable costing net operating income.
Ans: True
AACSB: Analytic
AICPA FN: Reporting
LO: 3
10. Under variable costing it may be possible to report a profit even if the
company sells less than the break-even volume of sales.
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 4
11. Absorption costing net operating income is closer to the net cash flow of a
period than is variable costing net operating income.
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 4
12. Variable costing is not permitted for income tax purposes, but it is widely
accepted for external financial reports.
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 4
Level: Medium
13. A basic concept of the contribution approach and variable costing is that fixed
costs are not important in an organization.
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 4
Level: Medium
Ans: True
AACSB: Analytic
AICPA FN: Reporting
LO: 4
15. When lean production is introduced, the difference in net operating income
computed under the absorption and variable costing methods is reduced.
Ans: True
AACSB: Analytic
AICPA FN: Reporting
LO: 5
16. How would the following costs be classified (product or period) under variable
costing at a retail clothing store?
A)
B)
C)
D)
Sales commissions
Product
Period
Product
Period
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
17. The principal difference between variable costing and absorption costing
centers on:
A)
B)
C)
D)
none of these.
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
A)
B)
C)
D)
Ans: A
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
19. Assuming that direct labor is a variable cost, the primary difference between
the absorption and variable costing is that:
A)
variable costing treats only direct materials and direct labor as product
cost while absorption costing treats direct materials, direct labor, and
the variable portion of manufacturing overhead as product costs.
B)
variable costing treats direct materials, direct labor, the variable portion
of manufacturing overhead, and an allocated portion of fixed
manufacturing overhead as product costs while absorption costing
treats only direct materials, direct labor, and the variable portion of
manufacturing overhead as product costs.
C)
variable costing treats only direct materials, direct labor, the variable
portion of manufacturing overhead, and the variable portion of selling
and administrative expenses as product cost while absorption costing
treats direct materials, direct labor, the variable portion of
manufacturing overhead, and an allocated portion of fixed
manufacturing overhead as product costs.
D)
variable costing treats only direct materials, direct labor, and the
variable portion of manufacturing overhead as product costs while
absorption costing treats direct materials, direct labor, the variable
portion of manufacturing overhead, and an allocated portion of fixed
manufacturing overhead as product costs.
Ans: D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
20. The costing method that treats all fixed costs as period costs is:
A)
absorption costing.
B)
job-order costing.
C)
variable costing.
D)
process costing.
Ans: C
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
21. In its first year of operations, Bronfren Corporation produced 800,000 sets
and sold 780,000 sets of artificial tan lines. What would have happened to net
operating income in this first year under the following costing methods if
Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both
variable and fixed production costs.)
A)
B)
C)
D)
Variable costing
Increase
Decrease
Decrease
No effect
Absorption costing
Increase
Increase
Decrease
Decrease
Ans: D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Medium
22. When sales are constant, but the production level fluctuates, net operating
income determined by the variable costing method will:
A)
B)
remain constant.
C)
D)
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Medium
23. Under the variable costing method, which of the following is always expensed
in its entirety in the period in which it is incurred?
A)
B)
C)
D)
Ans: D
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Hard
24. Which of the following will usually be found on an income statement prepared
using the absorption costing method?
Contribution Margin
Yes
Yes
No
No
A)
B)
C)
D)
Gross Margin
Yes
No
Yes
No
Ans: C
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Easy
25. Net operating income under variable and absorption costing will generally:
A)
always be equal.
B)
never be equal.
C)
D)
Ans: C
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Medium
26. When production exceeds sales, net operating income reported under
variable costing generally will be:
A)
B)
C)
D)
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Medium
27. Net operating income under absorption costing may differ from net operating
income determined under variable costing. How is this difference calculated?
A)
B)
C)
D)
Ans: A
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Hard
Source: CMA, adapted
28. When sales are constant, but the production level fluctuates, net operating
income determined by the absorption costing method will:
A)
B)
C)
D)
none of these
Ans: A
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 4
Level: Medium
29. A reason why absorption costing income statements are sometimes difficult
for the manager to interpret is that:
A)
B)
C)
D)
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 4
Level: Medium
30. Under the theory of constraints (TOC), which of the following is treated as a
period cost?
Direct labor
Yes
Yes
No
No
A)
B)
C)
D)
Direct material
Yes
No
Yes
No
Ans: B
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 5
Level: Medium
31. Fleet Corporation produces a single product. The company manufactured 700
units last year. The ending inventory consisted of 100 units. There was no
beginning inventory. Variable manufacturing costs were $6.00 per unit and
fixed manufacturing costs were $2.00 per unit. What would be the change in
the dollar amount of ending inventory if variable costing was used instead of
absorption costing?
A)
$800 decrease
B)
$200 decrease
C)
$0
D)
$200 increase
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
Source: CMA, adapted
Solution:
Change in inventory Fixed manufacturing costs per unit
= 100 $2 = $200 decrease
4. All of the following costs are inventoried under absorption costing except:
A. direct materials.
B. direct labor.
C. variable manufacturing overhead.
D. fixed manufacturing overhead.
E. fixed administrative salaries.
Direct
Labor
Variable
Fixed
Manufacturi
ng
Administrat
ive
A.
Yes
Overhead
No
Expenses
Yes
B.
Yes
Yes
Yes
C.
No
Yes
No
D.
No
No
Yes
E.
No
No
No
8. Lone Star has computed the following unit costs for the year just ended:
$12
Direct labor
18
25
29
10
17
9. Prescott Corporation has computed the following unit costs for the year just
ended:
$18
Direct labor
27
30
32
9
17
10. Santa Fe Corporation has computed the following unit costs for the year just
ended:
$25
Direct labor
19
35
40
17
32
Which of the following choices correctly depicts the per-unit cost of inventory
under variable costing and absorption costing?
Variabl
e
Absorption
Costing
A.
Costing
$79
$119
B.
$79
$151
C.
$96
$119
D
.
$96
$151
E.
11.
Delaware has computed the following unit costs for the year just ended:
Variable manufacturing cost
Fixed manufacturing cost
Variable selling and administrative cost
Fixed selling and administrative cost
$85
20
18
11
Which of the following choices correctly depicts the per-unit cost of inventory
under variable costing and absorption costing?
A.
B.
C.
D.
E.
Indiana Company incurred the following costs during the past year when planned
production and actual production each totaled 20,000 units:
$280,00
0
Direct labor
120,000
160,000
100,000
60,000
90,000
12. If Indiana uses variable costing, the total inventoriable costs for the year
would be:
A. $400,000.
B. $460,000.
C. $560,000.
D. $620,000.
E. $660,000.
I.
II.
III.
15. Roberts, which began business at the start of the current year, had the
following data:
A. $97,500.
B. $147,000.
C. $166,500.
D. $370,000.
E. some other amount.
16. McAfee, which began business at the start of the current year, had the
following data:
The contribution margin that the company would disclose on an absorptioncosting income statement is:
A. $0.
B. $147,000.
C. $166,500.
D. $370,000.
E. some other amount.
17. Chicago began business at the start of the current year. The company
planned to produce 25,000 units, and actual production conformed to
expectations. Sales totaled 22,000 units at $30 each. Costs incurred were:
$150,00
0
100,00
0
18. Norton, which began business at the start of the current year, had the
following data:
The contribution margin that the company would disclose on a variablecosting income statement is:
A. $97,500.
B. $147,000.
C. $166,500.
D. $370,000.
E. some other amount.
19. Madison began business at the start of the current year. The company
planned to produce 30,000 units, and actual production conformed to
expectations. Sales totaled 28,000 units at $32 each. Costs incurred were:
$150,0
00
90,000
11
20.
The following data relate to Lobo Corporation for the year just ended:
Sales revenue
Cost of goods sold:
Variable portion
Fixed portion
Variable selling and administrative cost
Fixed selling and administrative cost
$750,000
370,000
110,000
50,000
75,000
D.
E.
Franz began business at the start of this year and had the following costs: variable
manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable
selling and administrative costs per unit, $2; and fixed selling and administrative
costs, $220,000. The company sells its units for $45 each. Additional data follow.
Planned production in
units
10,00
0
10,00
0
8,500
B. $9,000.
C. $15,000.
D. $18,000.
E. some other amount.
23. Income reported under absorption costing and variable costing is:
A. always the same.
B. typically different.
C. always higher under absorption costing.
D. always higher under variable costing.
E. always the same or higher under absorption costing.
24. Gomez's inventory increased during the year. On the basis of this
information, income reported under absorption costing:
A. will be the same as that reported under variable costing.
B. will be higher than that reported under variable costing.
C. will be lower than that reported under variable costing.
D. will differ from that reported under variable costing, the direction of which
cannot be determined from the information given.
E. will be less than that reported in the previous period.
25. Which of the following conditions would cause absorption-costing net income
to be lower than variable-costing net income?
A. Units sold exceeded units produced.
B. Units sold equaled units produced.
C. Units sold were less than units produced.
D. Sales prices decreased.
E. Selling expenses increased.
26. Which of the following situations would cause variable-costing net income to
27. Consider the following statements about absorption- and variable-costing net
income:
I.
II.
III.
Yearly income reported under absorption costing will differ from income
reported under variable costing if production and sales volumes differ.
Long-run, total income reported under absorption costing will often be
close to that reported under variable costing.
Differences in income under absorption and variable costing can often
be reconciled by multiplying the change in inventory (in units) by the
variable manufacturing overhead cost per unit.
28. Which of the following formulas can often reconcile the difference between
absorption- and variable-costing net income?
A. Change in inventory units x predetermined variable-overhead rate per
unit.
B. Change in inventory units predetermined variable-overhead rate per
unit.
C. Change in inventory units x predetermined fixed-overhead rate per unit.
D. Change in inventory units predetermined fixed-overhead rate per unit.
E. (Absorption-costing net income - variable-costing net income) x fixedoverhead rate per unit.
29. Monex reported $65,000 of net income for the year by using absorption
costing. The company had no beginning inventory, planned and actual
30. Canyon reported $106,000 of net income for the year by using variable
costing. The company had no beginning inventory, planned and actual
production of 50,000 units, and sales of 47,000 units. Standard variable
manufacturing costs were $15 per unit, and total budgeted fixed
manufacturing overhead was $150,000. If there were no variances, net
income under absorption costing would be:
A. $52,000.
B. $97,000.
C. $106,000.
D. $115,000.
E. $160,000.
31. Consider the following statements about absorption costing and variable
costing:
I.
II.
III.
32. Consider the following statements about absorption costing and variable
costing:
I.
II.
III.
35. Which of the following methods defines product cost as the unit-level cost
incurred each time a unit is manufactured?
A. Throughput costing.
B. Indirect costing.
C. Process costing.
D. Absorption costing.
E. Back-flush costing.
36. Orion's management recently committed to incurring direct labor and all
manufacturing overhead charges regardless of the number of units produced.
Under throughput costing, the company's cost of goods sold would include
charges for:
A. selling and administrative costs.
B. direct materials.
C. direct labor and manufacturing overhead.
D. direct materials, direct labor, and manufacturing overhead.
E. direct materials, direct labor, manufacturing overhead, and selling and
administrative costs.
37. Highline Company reported the following costs for the year just ended:
$180,00
0
Non-throughput manufacturing
costs
600,000
125,00
0
If Highline uses throughput costing and had sales revenues for the period of
$950,000, which of the following choices correctly depicts the company's cost
of goods sold and net income?
Cost of
Net
Goods Sold
$180,00
0
Income
$45,000
B.
$180,00
0
$645,000
C.
$305,00
0
$45,000
D
.
$305,00
0
$645,000
E.
A.
39. Which of the following differs between absorption costing and variable
costing?
A. The number of units produced.
B. The fixed-overhead volume variance.
C. Sales revenues.
D. The treatment of variable manufacturing overhead.
E. Income tax rates.
1. One way to compute the total contribution margin is to add total fixed
expenses to net operating income.
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Medium
2. On a CVP graph for a profitable company, the total revenue line will be
steeper than the total cost line.
Ans: True
AACSB: Analytic
AICPA FN: Reporting
LO: 2
3. In two companies making the same product and with the same total sales
and total expenses, the contribution margin ratio will be lower in the
company with a higher proportion of fixed expenses in its cost structure.
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 3
4. If the variable expense per unit increases, and all other factors remain
constant, the contribution margin ratio will increase.
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 3
5. The impact on net operating income of any given dollar change in total sales
can be estimated by multiplying the CM ratio by the dollar change in total
sales.
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Easy
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 4
7. The formula for the break-even point is the same as the formula to attain a
given target profit for the special case where the target profit is zero.
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 5; 6
Level: Medium
8. An increase in total fixed expenses will not affect the break-even point so
long as the contribution margin ratio remains unchanged.
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 5
9. All other things the same, a reduction in the variable expense per unit will
cause the break-even point to rise.
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 5
10. The unit sales volume necessary to reach a target profit is determined by
dividing the target profit by the contribution margin per unit.
Ans: False
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 6
Level: Medium
11. All other things the same, the margin of safety in dollars at a given level of
sales will tend to be lower for a capital-intensive company than for a laborintensive company with high variable expenses.
Ans: True
AACSB: Analytic
AICPA FN: Reporting
LO: 7
12. The margin of safety in dollars equals the excess of budgeted (or actual)
sales over the break-even volume of sales.
Ans: True
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 7
Level: Easy
13. A company with high operating leverage will experience a lower reduction in
net operating income in a period of declining sales than will a company with
low operating leverage.
Ans: False
AACSB: Analytic
AICPA FN: Reporting
LO: 8
14. If Q is the quantity of a product sold, P is the price per unit, V is the variable
expense per unit, and F is the total fixed expense, then the degree of
operating leverage is equal to: [Q(P-V)] [Q(P-V)-F]
Ans: True
AACSB: Analytic
AICPA FN: Reporting
LO: 8
15. A shift in the sales mix from products with high contribution margin ratios
toward products with low contribution margin ratios will raise the break-even
point.
Ans: True
AACSB: Analytic
AICPA FN: Reporting
LO: 9
B)
C)
D)
Ans: D
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 1
Level: Easy
17. Which of the following statements is correct with regard to a CVP graph?
A)
B)
A CVP graph shows the break-even point as the intersection of the total
sales revenue line and the total expense line.
C)
D)
A CVP graph shows the operating leverage as the gap between total
Ans: B
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 2
Level: Easy
18. If both the fixed and variable expenses associated with a product decrease,
what will be the effect on the contribution margin ratio and the break-even
point, respectively?
Decrease
Increase
Decrease
Increase
Decrease
Decrease
Increase
Increase
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3; 5
Level: Medium
Source: CMA; adapted
19. Which of the following is true regarding the contribution margin ratio of a
single product company?
A)
B)
The contribution margin ratio multiplied by the selling price per unit
equals the contribution margin per unit.
C)
D)
The contribution margin ratio equals the selling price per unit less the
variable expense ratio.
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 3
Level: Medium
B)
C)
D)
its selling price will be equal to its variable expense per unit.
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 5; 7
Level: Medium
B)
C)
D)
Ans: B
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 5
Level: Medium
B)
C)
D)
none of these.
Ans: D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 5
Level: Medium
23. Which of the following strategies could be used to reduce the break-even
point?
A)
B)
C)
D)
Fixed expenses
Increase
Decrease
Decrease
Increase
Contribution margin
Increase
Decrease
Increase
Decrease
Ans: C
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 5
Level: Easy
B)
C)
D)
Ans: B
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 5
Level: Easy
25. Target profit analysis is used to answer which of the following questions?
A)
B)
C)
D)
Ans: C
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 6
Level: Easy
B)
C)
D)
Ans: A
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 7
Level: Medium
B)
revenue.
C)
variable expense.
D)
Ans: D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 8
Level: Easy
Source: CMA; adapted
28. Which of the following is the correct calculation for the degree of operating
leverage?
A)
B)
C)
D)
Ans: C
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 8
Level: Easy
B)
C)
D)
Ans: A
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Reporting
LO: 9
Level: Easy
4. Which of the following would produce the largest increase in the contribution
margin per unit?
A. A 7% increase in selling price.
B. A 15% decrease in selling price.
C. A 14% increase in variable cost.
D. A 17% decrease in fixed cost.
E. A 23% increase in the number of units sold.
5. Which of the following would take place if a company were able to reduce its
variable cost per unit?
A.
B.
C.
D.
E.
Contribution
Margin
Increase
Increase
Decrease
Decrease
Increase
Break-even
Point
Increase
Decrease
Increase
Decrease
No effect
8. A company that desires to lower its break-even point should strive to:
A. decrease selling prices.
9. A company has fixed costs of $900 and a per-unit contribution margin of $3.
Which of the following statements is (are) true?
A. Each unit "contributes" $3 toward covering the fixed costs of $900.
B. The situation described is not possible and there must be an error.
C. Once the break-even point is reached, the company will make money at
the rate of $3 per unit.
D. The firm will definitely lose money in this situation.
E. Statements "A" and "C" are true.
10. Sanderson sells a single product for $50 that has a variable cost of $30.
Fixed costs amount to $5 per unit when anticipated sales targets are met. If
the company sells one unit in excess of its break-even volume, the bottomline profit will be:
A. $15.
B. $20.
C. $50.
D. an amount that cannot be derived based on the information presented.
E. an amount other than those in choices "A," "B," and "C" but one that can
be derived based on the information presented.
12.
Sales revenue
Variable costs
Fixed costs
$8,000,000
5,000,000
2,200,000
If these data are based on the sale of 20,000 units, the contribution margin
per unit would be:
A. $40.
B.
$150.
C.
$290.
D.
$360.
13. A recent income statement of Fox Corporation reported the following data:
Sales revenue
Variable costs
Fixed costs
$3,600,000
1,600,000
1,000,000
If these data are based on the sale of 10,000 units, the break-even point
would be:
A. 2,000 units.
B. 2,778 units.
C. 3,600 units.
D. 5,000 units.
E. an amount other than those above.
14. A recent income statement of Yale Corporation reported the following data:
Sales revenue
Variable costs
Fixed costs
$2,500,000
1,500,000
800,000
If these data are based on the sale of 5,000 units, the break-even sales would
be:
A. $2,000,000.
B. $2,206,000.
C. $2,500,000.
D. $10,000,000.
E. an amount other than those above.
15. Lawton, Inc., sells a single product for $12. Variable costs are $8 per unit and
fixed costs total $360,000 at a volume level of 60,000 units. Assuming that
fixed costs do not change, Lawton's break-even point would be:
A. 30,000 units.
B. 45,000 units.
C. 90,000 units.
D. negative because the company loses $2 on every unit sold.
E. a positive amount other than those given above.
16. Green, Inc., sells a single product for $20. Variable costs are $8 per unit and
fixed costs total $120,000 at a volume level of 5,000 units. Assuming that
fixed costs do not change, Green's break-even sales would be:
A. $160,000.
B. $200,000.
C. $300,000.
D. $480,000.
E. an amount other than those above.
18. Strand has a break-even point of 120,000 units. If the firm's sole product
sells for $40 and fixed costs total $480,000, the variable cost per unit must
be:
A. $4.
B. $36.
C. $44.
D. an amount that cannot be derived based on the information presented.
E. an amount other than those in choices "A," "B," and "C" but one that can
be derived based on the information presented.
19. Ribco Co., makes and sells only one product. The unit contribution margin is
$6 and the break-even point in unit sales is 24,000. The company's fixed
costs are:
A. $4,000.
B. $14,400.
C. $40,000.
D. $144,000.
E. an amount other than those above.
Sales price
Variable cost per unit
Fixed cost per unit
$60
20
4
22. Which of the following expressions can be used to calculate the break-even
point with the contribution-margin ratio (CMR)?
A. CMR fixed costs.
B. CMR x fixed costs.
C. Fixed costs CMR.
D. (Fixed costs + variable costs) x CMR.
E. (Sales revenue - variable costs) CMR.
C o s t- V o lu m e - P ro fi t G ra p h
$ 1 0 0 ,0 0 0
G
8 0 ,0 0 0
6 0 ,0 0 0
F
4 0 ,0 0 0
2 0 ,0 0 0
1 ,0 0 0
2 ,0 0 0
3 ,0 0 0
4 ,0 0 0
5 ,0 0 0
U n its
27. The vertical distance between the total cost line and the total revenue line
represents:
A. fixed cost.
B. variable cost.
C. profit or loss at that volume.
D. semivariable cost.
E. the safety margin.
28. Assume that the firm whose cost structure is depicted in the figure expects to
produce a loss for the upcoming period. The loss would be shown on the
graph:
A. by the area immediately above the break-even point.
B. by the area immediately below the total cost line.
C. by the area diagonally to the right of the break-even point.
D. by the area diagonally to the left of the break-even point.
E. in some other area not mentioned above.
29. At a given sales volume, the vertical distance between the fixed cost line and
30. Assume that the firm whose cost structure is depicted in the figure expects to
produce a profit for the upcoming accounting period. The profit would be
shown on the graph by the letter:
A. D.
B. E.
C. F.
D. G.
E. H.
P ro fi t- V o lu m e G ra p h
$ 4 0 ,0 0 0
2 0 ,0 0 0
2 ,0 0 0
4 ,0 0 0
6 ,0 0 0
U n it s
2 0 ,0 0 0
4 0 ,0 0 0
6 0 ,0 0 0
32. The triangular area between the horizontal axis and Line A, to the right of
4,000, represents:
A. fixed cost.
B. variable cost.
C. profit.
D. loss.
E. sales revenue.
33. A recent income statement of Oslo Corporation reported the following data:
Units sold
Sales revenue
Variable costs
Fixed costs
8,000
$7,200,000
4,000,000
1,600,000
If the company desired to earn a target net profit of $480,000, it would have
to sell:
A. 1,200 units.
B. 2,800 units.
C. 4,000 units.
D. 5,200 units.
E. an amount other than those above.
34. Yellow, Inc., sells a single product for $10. Variable costs are $4 per unit and
fixed costs total $120,000 at a volume level of 10,000 units. What dollar
sales level would Yellow have to achieve to earn a target net profit of
$240,000?
A. $400,000.
B. $500,000.
C. $600,000.
D. $750,000.
E. $900,000.
Archie sells a single product for $50. Variable costs are 60% of the selling price, and
the company has fixed costs that amount to $400,000. Current sales total 16,000
units.
35. Archie:
A. will break-even by selling 8,000 units.
B. will break-even by selling 13,333 units.
C. will break-even by selling 20,000 units.
D. will break-even by selling 1,000,000 units.
E. cannot break-even because it loses money on every unit sold.
37. In order to produce a target profit of $22,000, Archie's dollar sales must total:
A. $8,440.
B. $21,100.
C. $1,000,000.
D. $1,055,000.
E. an amount other than those above.
38. The difference between budgeted sales revenue and break-even sales
revenue is the:
A. contribution margin.
B. contribution-margin ratio.
C. safety margin.
D. target net profit.
E. operating leverage.
39. Maxie's budget for the upcoming year revealed the following figures:
Sales revenue
Contribution margin
Net income
$840,000
504,000
54,000
41. Dana sells a single product at $20 per unit. The firm's most recent income
statement revealed unit sales of 100,000, variable costs of $800,000, and
fixed costs of $400,000. If a $4 drop in selling price will boost unit sales
volume by 20%, the company will experience:
A. no change in profit because a 20% drop in sales price is balanced by a
20% increase in volume.
B. an $80,000 drop in profitability.
C. a $240,000 drop in profitability.
D. a $400,000 drop in profitability.
E. a change in profitability other than those above.
42. Grimes is studying the profitability of a change in operation and has gathered
the following information:
Fixed costs
Selling price
Variable cost
Sales (units)
Current
Operation
$38,000
$16
$10
9,000
Anticipated
Operation
$48,000
$22
$12
6,000
43. Gleason sells a single product at $14 per unit. The firm's most recent income
statement revealed unit sales of 80,000, variable costs of $800,000, and
fixed costs of $560,000. Management believes that a $3 drop in selling price
will boost unit sales volume by 20%. Which of the following correctly depicts
how these two changes will affect the company's break-even point?
A.
B.
C.
D.
E.
Drop in
Sales Price
Increase
Increase
Increase
Decrease
Decrease
Increase in
Sales Volume
Increase
Decrease
No effect
Increase
Decrease
44. All other things being equal, a company that sells multiple products should
attempt to structure its sales mix so the greatest portion of the mix is
composed of those products with the highest:
A. selling price.
B. variable cost.
C. contribution margin.
D. fixed cost.
E. gross margin.
45. O'Dell sells three products: R, S, and T. Budgeted information for the
upcoming accounting period follows.
Produc
t
R
S
T
Selling Price
16,000
12,000
52,000
$14
10
11
Variable Cost
$9
6
8
46. Wells Corporation has the following sales mix for its three products: A, 20%;
B, 35%; and C, 45%. Fixed costs total $400,000 and the weighted-average
contribution margin is $100. How many units of product A must be sold to
break-even?
A. 800.
B. 4,000.
C. 20,000.
D. An amount other than those above.
E. Cannot be determined based on the information presented.
Lamar & Co., makes and sells two types of shoes, Plain and Fancy. Data concerning
these products are as follows:
Plain
Fancy
$20.
00
$35.0
0
12.0
0
24.5
0
Sixty percent of the unit sales are Plain, and annual fixed expenses are $45,000.
48. Assuming that the sales mix remains constant, the total number of units that
the company must sell to break even is:
A. 2,432.
B. 2,647.
C. 4,737.
D. 5,000.
E. an amount other than those above.
49. Assuming that the sales mix remains constant, the number of units of Plain
that the company must sell to break even is:
A. 2,000.
B. 3,000.
C. 3,375.
D. 5,000.
E. 5,625.
50. Assuming that the sales mix remains constant, the number of units of Fancy
that the company must sell to break even is:
A. 2,000.
B. 3,000.
C. 3,375.
D. 5,000.
E. 5,625.
51. Which of the following underlying assumptions form(s) the basis for costvolume-profit analysis?
A. Revenues and costs behave in a linear manner.
B. Costs can be categorized as variable, fixed, or semivariable.
C. Worker efficiency and productivity remain constant.
D. In multiproduct organizations, the sales mix remains constant.
E. All of the above are assumptions that underlie cost-volume-profit analysis.
54. The contribution income statement differs from the traditional income
statement in which of the following ways?
A. The traditional income statement separates costs into fixed and variable
components.
B. The traditional income statement subtracts all variable costs from sales to
obtain the contribution margin.
C. Cost-volume-profit relationships can be analyzed more easily from the
contribution income statement.
D. The effect of sales volume changes on profit is readily apparent on the
traditional income statement.
E. The contribution income statement separates costs into product and
period categories.
55. Which of the following does not typically appear on a contribution income
statement?
A. Net income.
B. Gross margin.
C. Contribution margin.
D. Total variable costs.
E. Total fixed costs.
56.
57. The extent to which an organization uses fixed costs in its cost structure is
measured by:
A. financial leverage.
B. operating leverage.
C. fixed cost leverage.
D. contribution leverage.
E. efficiency leverage.
58. A manager who wants to determine the percentage impact on net income of
a given percentage change in sales would multiply the percentage
increase/decrease in sales revenue by the:
A. contribution margin.
B. gross margin.
C. operating leverage factor.
D. safety margin.
E. contribution-margin ratio.
60. You are analyzing Becker Corporation and Newton Corporation and have
concluded that Becker has a higher operating leverage factor than Newton.
Which one of the following choices correctly depicts (1) the relative use of
fixed costs (as opposed to variable costs) for the two companies and (2) the
percentage change in income caused by a change in sales?
A.
B.
C.
D.
E.
Percentage Change in
Income Caused by
a Change in Sales
Greater for Becker
Lower for Becker
Equal for both
Greater for Becker
Lower for Becker
Sales revenue
Contribution margin
Net income
$12,000,000
4,800,000
800,000
Sales revenue
Contribution margin
Net income
$10,000,000
4,000,000
1,000,000
Edco Company produced and sold 45,000 units of a single product last year, with
the following results:
Sales revenue
$1,350,000
Manufacturing costs:
Variable
585,000
Fixed
270,000
Selling costs:
Variable
40,500
Fixed
54,000
Administrative costs:
Variable
184,500
Fixed
108,000
64. If Edco's sales revenues increase 15%, what will be the percentage increase
in income before income taxes?
A. 15%.
B. 45%.
C. 60%.
D. 75%.
65. When advanced manufacturing systems are installed, what effect does such
installation usually have on fixed costs and the break-even point?
A.
B.
C.
D.
E.
Fixed Costs
Increase
Increase
Decrease
Decrease
Do not change
Break-even Point
Increase
Decrease
Increase
Decrease
Does not change
66. Which of the following statements is (are) true regarding a company that has
implemented flexible manufacturing systems and activity-based costing?
I.
II.
III.
The company has erred, as these two practices used in conjunction with
one another will severely limit the firm's ability to analyze costs over the
relevant range.
Costs formerly viewed as fixed under traditional-costing systems may
now be considered variable with respect to changes in cost drivers such
as number of setups, number of material moves, and so forth.
As compared with the results obtained under a traditional-costing
system, the concept of break-even analysis loses meaning.
A. I only.
B. II only.
C. III only.
D. I and II.
E. II and III.
67. A company, subject to a 40% tax rate, desires to earn $500,000 of after-tax
income. How much should the firm add to fixed costs when figuring the sales
revenues necessary to produce this income level?
A. $200,000.
B. $300,000.
C. $500,000.
D. $833,333.
E. $1,250,000.
68. Barney, Inc., is subject to a 40% income tax rate. The following data pertain
to the period just ended when the company produced and sold 45,000 units:
Sales revenue
$1,350,000
Variable costs
Fixed costs
810,000
432,000
How many units must Barney sell to earn an after-tax profit of $180,000?
A. 42,000.
B. 45,000.
C. 51,000.
D. 61,000.
E. An amount other than those above.