MULTIPLE CHOICE. Choose The One Alternative That Best Completes The Statement or Answers The Question
MULTIPLE CHOICE. Choose The One Alternative That Best Completes The Statement or Answers The Question
MULTIPLE CHOICE. Choose The One Alternative That Best Completes The Statement or Answers The Question
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
2) Atkinson Company wishes to earn after-tax net income of $18,000. Total fixed costs are $84,000 and the
contribution margin is $6.00 per unit. Atkinson's tax rate is 40%. The number of units that must be sold to earn
the targeted net income is ________.
A) 21,500 B) 14,000 C) 19,000 D) 17,000
3) Key Company has a targeted sales volume of 62,300 units. Total fixed costs are $31,200. The contribution margin
per unit is $1.20. What is targeted net income?
A) $74,760 B) $37,440 C) $43,560 D) $31,200
5) Which of the following statements is FALSE about information used for decision making?
A) Precise but irrelevant information is worthless for decision making.
B) Relevant information must be totally accurate or it is useless.
C) Imprecise but relevant information can be useful for decision making.
D) Relevant information must be reasonably accurate but not precisely so.
7) The county government released $100,000 as an appropriation for a counseling program for at-risk teenagers.
The program should run one year and the variable costs for the program are $400 per teenager per year. Within
the relevant range of 50 to 150 teenagers, the fixed costs for the program are $60,000. How many teenagers can
the program serve?
A) 150 B) 50 C) 250 D) 100
8) ________ are relevant in deciding whether to add or delete a department from a department store.
A) Unavoidable fixed expenses B) Common costs
C) Avoidable fixed expenses D) None of the above
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9) Which of the following costs is a variable cost?
A) depreciation expense of airplane for airline
B) fuel for airplane for airline
C) lease cost for factory machine for manufacturer of electronics
D) rental expense for factory building for manufacturer of electronics
10) Goy Company has a break-even point of 88,000 units. The contribution margin per unit is $9.60. The desired
target profit is $18,096. How many units must be sold to achieve the desired profit?
A) 106,096 units B) 88,000 units C) 1,885 units D) 89,885 units
12) Missouri Company has a current production capacity level of 200,000 units per month. At this level of
production, variable costs are $0.60 per unit and fixed costs are $0.50 per unit. Current monthly sales are 173,000
units. Gates Company has contacted Missouri Company about purchasing 20,000 units at $1.00 each. Current
sales would not be affected by the special order and no additional fixed costs would be incurred on the special
order. If the order is accepted, what is Missouri Company's change in profits?
A) $10,000 increase B) $8,000 increase C) $10,000 decrease D) $8,000 decrease
13) Wisconsin Company has a current production capacity level of 200,000 units per month. At this level of
production, variable costs are $1.00 per unit and fixed costs are $0.50 per unit. Current monthly sales are 164,500
units. Gates Company has contacted Wisconsin Company about purchasing 20,000 units at $2.00 each. Current
sales would not be affected by the special order and no additional fixed costs would be incurred on the special
order. Variable costs would increase $0.10 per unit with the special order. If the order is accepted, what is
Wisconsin Company's increase in operating income?
A) $18,000 B) $8,000 C) $20,000 D) $24,000
14) A small appliance manufacturer is deciding whether to accept or reject a special order for 1,750 appliances.
There is sufficient capacity available for the special order. What is relevant information for the decision whether
to accept or reject the special order?
A) the supervisor's salary in the production area B) the cost of the parts for the 1,750 appliances
C) the accountant's salary D) the depreciation on assembly equipment
15) If a company faces declining sales over time, it must restructure its costs to break-even at a lower volume. In
order to carry this out, what costs can be reduced?
A) variable costs only B) step costs only
C) fixed costs only D) variable and fixed costs
16) If the total amount of fixed costs increases, what is the effect on the break-even point? (Assume no other
changes.)
A) The break-even point increases. B) The break-even point decreases.
C) The break-even point remains the same. D) The break-even point is zero.
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18) In a linear cost function, the slope measures the ________.
A) fixed cost per unit of cost driver B) total fixed cost
C) variable cost per unit of cost driver D) total variable cost
19) Assume fixed costs are constant and contribution margin per unit is reduced by 50 percent. What will happen to
the break-even point in units?
A) It will increase 100 percent. B) It will be the same.
C) It will increase 50 percent. D) It will decrease 50 percent.
20) In a special order decision, which of the following costs are usually irrelevant to the decision?
A) variable selling costs B) variable manufacturing costs
C) fixed manufacturing costs D) variable indirect production costs
22) If a department in a department store is under consideration to be eliminated, unavoidable fixed expenses are
________ to the decision.
A) marginal B) irrelevant C) relevant D) incremental
23) ________ is the field of accounting that develops information for external parties such as stockholders,
suppliers, banks and governmental regulatory bodies.
A) Financial accounting B) Management accounting
C) Auditing D) Internal auditing
24) Which of the following items is usually NOT important to special order decisions?
A) increase in variable costs per unit due to special order
B) whether idle capacity is available
C) total fixed costs
D) affect of special order on regular business
25) In decision making situations, ________ aspects may dominate quantitative aspects in many decisions.
A) precision B) qualitative C) accuracy D) relevant
26) When deciding whether to add or delete a department, managers should keep the department as long as
________ from the department exceeds ________.
A) contribution margin; common costs B) contribution margin; variable costs
C) contribution margin; avoidable fixed costs D) contribution margin; unavoidable fixed costs
27) Berea Company expects to sell 19,000 units. Total fixed costs are $84,000 and the contribution margin per unit is
$6.00. Berea's tax rate is 40%. What is the margin of safety in units?
A) 7,500 units B) 5,000 units C) 3,000 units D) 14,000 units
3
28) Winston Company has variable costs of $5 per unit and a selling price of $10 per unit. Fixed costs are $100,000.
Planned unit sales for 2015 are 25,000 units. Actual unit sales for 2014 were 22,000 units. What is the margin of
safety in units for 2015?
A) 3,000 units B) 2,000 units C) 7,000 units D) 5,000 units
29) In make-or-buy decisions for a part for a product, relevant costs include ________.
A) some variable costs of making the part
B) all variable costs of making the part
C) fixed costs that can be avoided in the future if the part is purchased
D) B and C
30) Sue is considering leaving her current position to open a coffee shop. Sue's current annual salary is $83,000.
Annual coffee shop revenue and costs are estimated at $260,000 and $210,000, respectively. What is Sue's
opportunity cost of staying at her current work position?
A) $210,000 B) $50,000 C) $83,000 D) $343,000
31) In the long run, the selling price of a product should cover ________.
A) all variable costs and some fixed costs B) all fixed costs only
C) all variable costs only D) all variable costs and all fixed costs
32) Suppose Shady Lane Hotel has annual fixed costs applicable to its rooms of $1.0 million for its 300-room hotel.
Average daily room rents are $60 per room and average variable costs are $10 for each room rented. It operates
365 days per year. What percent of occupancy is needed to breakeven?
A) 3.65% B) 34.3% C) 18.3% D) 27.4%
34) If a department in a grocery store is under consideration to be eliminated, which of the following cost(s) is(are)
NOT relevant to the decision?
A) avoidable fixed expenses B) unavoidable costs
C) common costs D) B and C
35) Each month Newton Company produces 30,000 units of a product that has variable costs of $70 per unit. Total
fixed costs for the month are $99,000. A special order is received for 1,000 units at a price of $80 per unit.
Newton Company has adequate capacity for the special order. If Newton Company accepts the special order,
what is the profit to Newton Company from the special order?
A) $10,000 B) $0 C) $6,700 D) $7,000
36) In deciding whether to add or delete a product, the salary of the plant manager is an ________. Assume the
plant manager supervised the production of several products.
A) avoidable fixed cost B) unavoidable variable cost
C) unavoidable fixed cost D) avoidable variable cost
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37) If the contribution margin per unit increases, what is the effect on the break-even point? (Assume no other
changes.)
A) The break-even point decreases. B) The break-even point will be zero.
C) The break-even point increases. D) The break-even point remains the same.
38) If the selling price per unit increases, what is the effect on the break-even point? (Assume no other changes.)
A) The break-even point increases. B) The break-even point decreases.
C) The break-even point remains the same. D) The break-even point is zero.
39) If the proportions of different products sold in a sales mix change, the ________.
A) contribution margin per unit for each product increases
B) break-even point will change
C) net income will not change
D) contribution margin per unit for each product decreases
40) Step Company has total variable costs of 80% of total revenues and fixed costs of $20 million per year. What is
the break-even point expressed in total revenue dollars?
A) $20 million B) $100 million C) $10 million D) $12.5 million
41) Generally Accepted Accounting Principles are most closely connected to ________.
A) management accounting B) management auditing
C) internal auditing D) financial accounting
44) In deciding whether to add or delete a product, the insurance expense associated with the custom-built
equipment used to produce the product is an ________ cost. Assume the equipment will be sold if the company
discontinues the product.
A) unavoidable fixed B) avoidable variable
C) avoidable fixed D) unavoidable variable
45) Gokey Company has a contribution-margin ratio of 0.30. Targeted net income is $76,800 and targeted sales
volume in dollars is $480,000. What are total fixed costs?
A) $23,000 B) $67,200 C) $144,000 D) $44,160
46) Worbel Company has variable costs of $5 per unit and a selling price of $10 per unit. Fixed costs are $100,000.
Planned unit sales for 2015 are 25,000 units. Actual unit sales for 2014 were 22,000. What is the margin of safety
in dollars for 2015?
A) $5,000 B) $50,000 C) $20,000 D) $30,000
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47) When choosing between two alternatives, what of the following are relevant costs?
A) future variable costs that are the same under two alternatives
B) future variable costs that are different under two alternatives
C) future fixed costs that are different under two alternatives
D) B and C
48) If the variable cost per unit increases, what is the effect on the break-even point? (Assume no other changes.)
A) The break-even point increases. B) The break-even point decreases.
C) The break-even point remains the same. D) The break-even point is zero.
50) Wetzel Company has variable costs of $5 per unit and a selling price of $10 per unit. Fixed costs are $200,000.
Planned unit sales for 2015 are 45,000 units. Actual unit sales for 2014 were 42,000. What is the margin of safety
in units for 2015?
A) 3,000 units B) 2,000 units C) 7,000 units D) 5,000 units
51) ________ is the field that produces information used primarily by managers within an organization.
A) External auditing B) Financial accounting
C) Management accounting D) Internal auditing
52) Sharpie Company has variable costs of 75% of total revenues and fixed costs of $40 million per year. What is the
break-even point in dollars?
A) $160 million B) $53.33 million C) $40 million D) $100 million
53) If a department in a department store is eliminated, ________ costs will not continue.
A) unavoidable B) common C) avoidable D) corporate
54) Murphy Company produces dolls. Each doll sells for $20.00. Variable costs per unit are $14.00 and total fixed
costs for the period are $435,000. What is the break-even point in units?
A) 51,176 B) 72,500 C) 21,750 D) 31,071
55) Abbott Company sells desks at $480 per desk. The variable costs are $372 per desk. Total fixed costs for the
period are $456,840. The break-even volume in dollars is ________.
A) $2,030,400 B) $589,471 C) $1,573,560 D) $456,840
56) In deciding whether to add or delete a product or service, common costs are probably ________.
A) relevant and avoidable B) irrelevant and unavoidable
C) irrelevant and avoidable D) relevant and unavoidable
57) When considering the replacement of old equipment, which of the following item is relevant?
A) future maintenance costs of old equipment B) book value of old equipment
C) loss on disposal of old equipment D) accumulated depreciation on old equipment
58) In a mixed-cost linear function with one cost driver, the intercept is the ________ and the slope is the ________.
A) fixed cost; variable cost B) variable cost; fixed cost
C) variable cost; step cost D) fixed cost; step cost
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59) Assume the sales price is $34 per unit and the variable cost is $19 per unit. The break-even point is 12,000 units.
What are total fixed costs?
A) $530,000 B) $190,000 C) $340,000 D) $180,000
61) Department A covers one section of a large factory building. Which of the following costs is relevant to the
decision to eliminate Department A?
A) General corporate overhead allocated to Department A
B) Depreciation Expense on store building allocated to Department A
C) Salary Expense of Supervisor in Department A; he only works in Department A
D) Heating expenses of building allocated to Department A
62) When comparing management accounting and financial accounting, which of the following statements is
FALSE?
A) Management accounting prepares detailed reports whereas financial accounting prepares summary
reports.
B) Behavioral considerations are of primary importance in management accounting, but not in financial
accounting.
C) Management accounting has a future orientation whereas financial accounting has a past orientation.
D) Management accountants are constrained by the principles of reporting promulgated by the Institute of
Management Accountants whereas financial accountants are constrained by Generally Accepted
Accounting Principles.
65) Suppose Sunnyside Hotel has annual fixed costs applicable to its rooms of $1.0 million for its 300-room hotel.
Average daily room rents are $60 per room, and average variable costs are $10 for each room rented. It operates
365 days per year. What is the break-even point in number of rooms rented?
A) 120,000 B) 20,000 C) 30,000 D) 100,000
66) A compensation plan where the sales force is paid salary plus commission is a ________.
A) mixed cost B) purely variable cost
C) fixed cost D) step cost
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67) Assume Mussa Company has the following information available:
68) When making a make-or-buy decision for a part used in a product, which of the following item is relevant to
the decision?
A) contribution margin on new products manufactured in idle area not used for making part
B) rental income from idle plant when not making the part
C) variable costs of making the part
D) all of the above
69) Fast Company has just decided to outsource the production of a part for a product. Assume Fast Company
leaves the area of the manufacturing plant idle where it was producing the outsourced part. It has no alternative
uses of the plant. What is the opportunity cost of the idle area of the manufacturing plant to Fast Company?
A) the disposal value of the entire manufacturing plant
B) definitely a negative number
C) zero
D) none of the above
70) Jensen Company produces dolls. Each doll sells for $20.00. Variable costs are $14.00 per unit. If the break-even
volume in dollars is $1,446,000, then the total fixed costs for the period are ________.
A) $1,446,000 B) $361,500 C) $433,800 D) $516,425
72) Falls Company has budgeted sales of $120,000 based on 80,000 units. The margin of safety is $1,000. What is the
break-even point in dollars?
A) $121,000 B) $120,000 C) $119,000 D) $81,000
73) When managers graph a linear cost function with one cost driver, the intercept represents the ________ cost and
the slope represents the ________ cost.
A) fixed; variable B) fixed; mixed C) variable; fixed D) variable; mixed
74) Suppose a Super 9 Hotel has annual fixed costs applicable to its rooms of $1.0 million for its 300-room hotel.
Average daily room rents are $60 per room and average variable costs are $10 for each room rented. It operates
365 days per year. If the hotel is one-half full throughout the entire year, what is the amount of net income for
one year?
A) $1,737,500 B) $5,570,000 C) $5,475,000 D) $4,475,000
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75) With the high-low method, the most accurate way to measure the intercept and slope for a cost function is to
________.
A) use algebra using the two data points with the highest and lowest activity levels
B) plot the data points and draw a line
C) plot the data points, identify the high and low points and draw a line between the high and low points
D) plot the data points and draw a straight line through the points as close as possible to all the points
76) In a make-or-buy decision, which of the following is the fundamental question that is asked in making the
decision?
A) What is the difference in present costs between the two alternatives?
B) What is the difference in present revenues between the two alternatives?
C) What is the difference in future costs between the two alternatives?
D) What is the difference in future revenues between the two alternatives?
77) A cost-volume-profit graph has a line for ________ and a line for ________.
A) revenues; fixed costs only B) revenues; total costs
C) revenues; variable costs only D) net profit; net loss
79) Fixed overhead costs that will continue regardless of a make-or-buy decision are ________ to the make-or-buy
decision.
A) irrelevant B) relevant C) incremental costs D) opportunity costs
80) Simon Inc. currently produces 110,000 units at a cost of $440,000. The cost is variable. Next year Simon Inc.
expects to produce 115,000 units. Simon's relevant range for production is 100,000 to 120,000 units. If 115,000
units are produced next year, what is the expected variable cost?
A) $440,000 B) $460,000 C) $420,000 D) $430,000
81) The use of high technology equipment to manufacture products instead of highly skilled labor usually results in
________.
A) higher discretionary variable costs B) higher operating leverage
C) higher discretionary fixed costs D) lower risk
82) The salary foregone by a person who quits a job to start a business is an example of a(n) ________.
A) sunk cost B) outlay cost C) opportunity cost D) depreciable cost
83) Taco Bell wants to increase profitability of stores in the Midwest by adding new menu items and increasing
advertising. This is an experiment and the company is unsure if these actions will be fruitful. On the part of
management, this is an example of ________.
A) feedback B) planning C) scorekeeping D) control
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84) In a make-or-buy decision for a part for a product, which of the following qualitative factors play a role?
A) credit terms offered by supplier of part
B) timeliness of delivery of purchased part by supplier
C) quality of purchased part
D) all of the above
85) Assume the sales price is $100 per unit and the total fixed costs are $75,000. The break-even volume in dollar
sales is $250,000. What is the variable cost per unit?
A) $125 B) $100 C) $70 D) $30
86) Each month Fig Company produces 11,000 units of a product that sells for $18 per unit, and has variable costs of
$12 per unit. Total fixed costs for the month are $77,000. A special order is received for 5,000 units at a price of
$14 per unit. Fig Company has adequate capacity for the special order. If Fig Company accepts the special
order, what is the profit to Fig Company from the special order?
A) $22,000 B) $0 C) $99,000 D) $10,000
87) The degree of operating leverage for Geesling Company is 8.0 at 80,000 units of sales. At 80,000 units of sales,
the net profit is $10,000. If the sales volume increases to 90,000 units, what is the net profit?
A) $80,000 B) $12,000 C) $22,222 D) $20,000
88) Financial reports prepared by financial accountants focus on ________. Financial reports prepared by
management accountants focus on ________.
A) the organization as a whole; segments of the organization such as departments and divisions
B) segments of the organization such as departments and divisions; segments of the organization such as
departments and divisions
C) segments of the organization such as departments and divisions; the organization as a whole
D) the organization as a whole; the organization as a whole
89) How is accounting information prepared by management accountants used within an organization?
A) to help operating managers make decisions B) to plan an organization's operations
C) to control an organization's operations D) all of the above
90) The sales price is $30 per unit, the contribution margin is $8 per unit and total fixed costs are $32,000. What is
the break-even point in units?
A) 857 B) 2,000 C) 4,000 D) 1,200
92) In special order situations, unit costs are useful for predicting total ________. In special order situations, unit
costs are not useful for predicting total ________.
A) fixed costs; variable costs B) mixed costs; step costs
C) step costs; mixed costs D) variable costs; fixed costs
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94) The degree of operating leverage for a firm equals the ratio of ________ to ________.
A) fixed costs; variable costs B) variable costs; fixed costs
C) fixed costs: operating profit D) contribution margin; net income
95) Southern Chicken is expanding the menu items offered in order to increase profitability. Management will
evaluate the profitability of each new menu item after six months. Menu items that are profitable will be
retained and the others will be discontinued. On the part of management, the evaluation and subsequent actions
after six months is an example of ________.
A) planning B) management auditing
C) internal auditing D) control
96) Suppose a hotel has annual fixed costs applicable to its rooms of $2.0 million for its 300-room hotel. Average
daily room rents are $50 per room and average variable costs are $10 for each room rented. It operates 365 days
per year. If the hotel is completely full throughout the year, what is net income for one year?
A) $2,380,000 B) $3,180,000 C) $1,280,000 D) $4,380,000
If total fixed costs increased to $600,000, then the break-even volume in dollars would increase by ________.
A) 100% B) 200% C) 10.0% D) 50.0%
98) Knowledge about the behavior of different costs in a service department such as maintenance can be used to
________.
A) plan costs
B) make decisions about the most efficient use of resources
C) provide feedback to managers
D) all of the above
99) The degree of operating leverage for Murphy Company is 8.0 at 80,000 units of sales. At 80,000 units of sales,
the net profit is $10,000. If the sales volume decreases to 72,000 units, what is the net profit?
A) $2,000 B) $10,000 C) $8,000 D) $18,000
100) Christian Corporation sells desks at $480 per desk. The variable costs are $300 per desk. Total fixed costs for the
period are $540,000. The break-even point in desks is ________.
A) 4,230 B) 1,800 C) 1,125 D) 3,000
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Answer Key
Testname: UNTITLED1
1) B
2) C
3) C
4) D
5) B
6) A
7) D
8) C
9) B
10) D
11) A
12) B
13) A
14) B
15) D
16) A
17) B
18) C
19) A
20) C
21) B
22) B
23) A
24) C
25) B
26) C
27) B
28) D
29) D
30) B
31) D
32) C
33) B
34) D
35) A
36) C
37) A
38) B
39) B
40) B
41) D
42) C
43) C
44) C
45) B
46) B
47) D
48) A
49) A
50) D
12
Answer Key
Testname: UNTITLED1
51) C
52) A
53) C
54) B
55) A
56) B
57) A
58) A
59) D
60) A
61) C
62) D
63) B
64) D
65) B
66) A
67) C
68) D
69) C
70) C
71) D
72) C
73) A
74) A
75) A
76) C
77) B
78) A
79) A
80) B
81) B
82) C
83) B
84) D
85) C
86) D
87) D
88) A
89) D
90) C
91) B
92) D
93) D
94) D
95) D
96) A
97) A
98) D
99) A
100) D
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