Multiple Choice for Accounting 2120 Exam 2

1. What is the formula for Contribution Margin?

A. Sales Revenue - Fixed Costs

B. Sales Revenue - Variable Costs

C. Sales Revenue - Total Costs

D. Variable Costs - Fixed Costs

1. What is the formula for Contribution Margin?

A. Sales Revenue - Fixed Costs

B. Sales Revenue - Variable Costs

C. Sales Revenue - Total Costs

D. Variable Costs - Fixed Costs

B

What is Contribution Margin?

Contribution Margin represents the amount remaining from sales revenue after variable costs have been subtracted. It contributes to covering fixed costs and generating profit. It can be expressed both in total and per unit, and is a key metric for understanding how sales affect profitability.

How do you calculate the Contribution Margin Ratio?

A. (Total Revenue / Fixed Costs)/Total Revenue

B. (Sales Revenue / Fixed Costs) × 100

C. (Total Revenue - Variable Costs)/Total Revenue

D. (Fixed Costs / Sales Revenue) × 100

C

4. What is the Breakeven Point in units formula? A. Variable Costs / Sales Price per Unit

B. Fixed Costs / Sales Price per Unit

C. Fixed Costs / (Sales Price per unit-Variable costs per unit)

D. (Fixed Costs + Variable Costs) / Sales Price per Unit

C

5. What is the Breakeven Point in sales dollars formula?

A. (Fixed Costs / Variable Costs) × Sales Revenue B. Fixed Costs / Contribution Margin

C. Contribution Margin / Fixed Costs

D. (Variable Costs + Fixed Costs) / Contribution Margin Ratio

B

How do you calculate Target Profit in units?
A. (Variable Costs / Sales Price per Unit) + Fixed Costs
B. Fixed Costs / Sales Price per Unit
C. (Fixed Expenses + Operating Income) / Contribution Margin per Unit
D. Contribution Margin per Unit / Fixed Costs

C

What is the Margin of Safety and how is it calculated?
A. Expected or Actual Sales - Variable Costs
B. Expected or Actual Sales - Breakeven Sales
C. Contribution Margin / Actual Sales
D. Fixed Costs - Variable Costs

B

Margin of Safety Percentage
A. (Breakeven Sales / Expected or Actual Sales) × 100
B. (Margin of Safety / Expected or Actual Sales) × 100
C. (Fixed Costs / Sales Revenue) × 100
D. (Actual Sales / Contribution Margin) × 100

B

What is Operating Leverage and how is it calculated?
A. Fixed Costs / Total Costs
B. Variable Costs / Fixed Costs
C. Fixed Costs / Contribution Margin
D. Sales Revenue / Total Costs

A

How do variable costs change with production volume?
A. Variable costs remain constant per unit but change in total with production volume
B. Variable costs remain constant in total but change per unit with production volume
C. Variable costs change unpredictably with production volume
D. Variable costs increase proportionally per unit with volume

A

How do fixed costs change with production volume?
A. Fixed costs remain constant per unit but change in total with production volume
B. Fixed costs remain constant in total but vary per unit with production volume
C. Fixed costs decrease in total with increasing volume
D. Fixed costs increase in total with decreasing volume

B

How does the breakeven point change with a change in variable or fixed costs?
A. It increases with an increase in fixed or variable costs and decreases when they decrease
B. It decreases with an increase in variable costs and increases with a decrease in fixed costs
C. It remains constant regardless of costs
D. It fluctuates only when sales volume changes

A

If sales price per unit increases while variable costs and fixed costs remain constant, what happens to the contribution margin per unit?
A. It increases
B. It decreases
C. It remains the same
D. It fluctuates depending on fixed costs

A

How does a decrease in sales volume affect the margin of safety?
A. The margin of safety increases
B. The margin of safety decreases
C. The margin of safety remains constant
D. It depends on variable costs

B

What does a high degree of operating leverage indicate?
A. High fixed costs relative to variable costs
B. Low fixed costs relative to variable costs
C. High variable costs relative to fixed costs
D. Low contribution margin

A

If a company wants to reduce its breakeven point, which of the following strategies would be most effective?
A. Increase fixed costs
B. Decrease the selling price per unit
C. Decrease variable costs per unit
D. Increase production volume

C

Which of the following is true about absorption costing?
A. It only includes variable manufacturing costs
B. It may cause operating income to fluctuate with production levels rather than sales
C. It excludes fixed overhead costs from product cost
D. It is always preferred for short-term decision-making

B

Which formula correctly calculates the Contribution Margin?
A. Fixed Costs - Variable Costs
B. Sales Revenue - Variable Costs
C. Sales Revenue - Fixed Costs
D. Sales Revenue / Total Costs

B

If fixed costs increase, what happens to the breakeven point?
A. The breakeven point decreases
B. The breakeven point increases
C. The breakeven point remains the same
D. The breakeven point fluctuates randomly

B

How is the margin of safety percentage calculated and what does it measure?
A. (Breakeven Sales / Expected or Actual Sales) × 100, measuring sales-to-cost ratio
B. (Margin of Safety / Expected or Actual Sales) × 100, indicating how much sales can drop before reaching breakeven
C. (Variable Costs / Actual Sales) × 100, measuring variable cost percentage
D. (Fixed Costs / Margin of Safety) × 100, indicating fixed cost coverage

B

What is a price taker?

A price taker is a firm that must accept the prevailing market price for its goods or services, as it lacks the power to influence prices. Price takers typically operate in highly competitive markets where products are standardized, and consumers have many options. 

What defines a price taker?
A. A firm that sets its own prices
B. A firm that accepts the market price without influencing it
C. A firm that sells unique products
D. A firm that has monopoly power

B

Which of the following characteristics is typical of a price taker market?
A. Few sellers and many buyers
B. Products are highly differentiated
C. Many sellers and many buyers with similar products
D. High barriers to entry

C

If variable costs decrease, how does this affect the contribution margin per unit?
A. It decreases
B. It increases
C. It remains the same
D. It becomes negative

B

How do changes in sales volume affect the margin of safety?
A. Margin of safety increases with an increase in sales volume
B. Margin of safety decreases with an increase in sales volume
C. Margin of safety is unaffected by changes in sales volume
D. Margin of safety fluctuates randomly

A

In a scenario where fixed costs increase but sales remain constant, what will happen to the breakeven point?
A. It will decrease
B. It will remain the same
C. It will increase
D. It will fluctuate

C

If the contribution margin increases due to a higher selling price per unit, what happens to the breakeven point?
A. It increases
B. It decreases
C. It remains the same
D. It fluctuates

B

What should managers consider when deciding whether to accept a special order?
A. Total fixed costs
B. Contribution margin of the order
C. Historical sales data
D. Market trends

B

Which of the following factors is least relevant for short-term decision-making?
A. Contribution margin
B. Fixed costs
C. Variable costs
D. Long-term strategic goals

D

How do absorption costing and variable costing differ in terms of fixed overhead?
A. Absorption costing includes fixed overhead in product costs, while variable costing does not
B. Both costing methods include fixed overhead in the same way
C. Absorption costing only considers variable costs
D. Variable costing includes fixed overhead in product costs

A

22. The cost per unit decreases as volume increases for which of the following cost​ behaviors?

    A. Variable costs and mixed costs

    B. Variable costs and fixed costs

    C. Fixed costs and mixed costs                            

    D. Only fixed costs

C

32. If the cost per unit remains constant over a wide range of activity​ levels, the cost is most likely a

A. step cost.

B. variable cost.

C. fixed cost.                                                                                   

D. mixed cost.

B

33. If a company sells one unit above its breakeven​ sales, then its operating income would be equal to

A. the unit selling price.

B. the fixed expenses.

C. the unit contribution margin.

D. Zero.

C

34. What is the margin of​ safety?

A. the sales level at which operating income is zero

B. the difference between the sales price per unit and the variable cost per unit

C. the excess of expected sales over breakeven sales

D. the amount of fixed and variable costs that make up a​ company's total costs

C

35. The process of experimenting with base​ case, best​ case, and worst case scenarios to see what would happen to company profits under those conditions would be an example of

A. sequencing analysis.

B. breakeven analysis.

C. scenario analysis.

D. target profit analysis.

B

36. When making​ decisions, managers should consider

A. revenues that differ between alternatives.

B. only variable costs.

C. costs that do not differ between alternatives.

D. sunk costs.

A

37. Which of the following costs is irrelevant to business​ decisions?

A. Sunk costs

B. Variable costs

C. Avoidable costs

D. Costs that differ between alternatives

A

38. In making​ short-term special​ decisions, the​ decision-maker should

A. focus on total costs.

B. use a traditional absorption costing approach.

C. separate variable costs from fixed costs.

D. focus only on quantitative factors.

C

39. When pricing a​ product, managers must consider which of the following​ costs?

A. Only period costs

B. Only variable costs

C. Only manufacturing costs

D. All costs

D

40. When deciding whether to drop its CD label​ line, Avery Products Corporation would consider

A. how dropping the CD label product line would affect sales of its other label products.

B. the revenues it would lose from dropping the product line.

C. the costs it could save by dropping the product line.

D. all of the listed items should be considered.

D

41. To maximize its total contribution margin when it has a limited supply of the mineral​ nickel, Telsa,​ Inc., should focus on producing the car model that has the highest

A. contribution margin per unit of product.

B. profit per unit of product.

C. contribution margin per pound of nickel.

D. contribution margin ratio.

C

42. When making outsourcing decisions

A. avoidable fixed costs are irrelevant.

B. the variable cost producing the product​ in-house is relevant.

C. the manufacturing full unit cost of making the produce​ in-house is relevant.

D. expected use of the freed capacity is irrelevant.

B