Test 2 Multiple Choice

Which of the following is an irrelevant cost?

a sunk cost

incremental analysis would be appropriate for

acceptance of an order at a special price. a retain or replace equipment decision. a sell or process further decision. (all of these options are correct)

The last step in determining the material loading charge percentage is to

add a desired profit margin on the materials themselves.

in incremental analysis

all costs are relevant if they change between alternatives.

Cost behavior analysis is a study of how a firm's costs

respond to changes in the level of business activity

In CVP analysis, the term "cost"

includes manufacturing costs plus selling and administrative expenses.

Costs that will differ between alternatives and influence the outcome of a decision are

relevant costs

At the high level of activity in November, 8000 machine hours were run and power costs were $16000. In April, a month of low activity, 3000 machine hours were run and power costs amounted to $7000. Using the high-low method, the estimated fixed cost element of power costs is

$1,600

For Sunland Company at a sales level of 4000 units, sales is $71000, variable expenses total $54000, and fixed expenses are $21000. What is the contribution margin per unit?

$4.25

Marigold Corp. is contemplating the production and sale of a new widget. Projected sales are $480000 (or 80000 units) and desired profit is $32000. What is the target cost per unit?

$5.60

The required sales in units to achieve a target net income is

(fixed cost + target net income)/contribution margin per unit

Coronado Industries reported sales of $1800000 last year (90000 units at $20 each), when the break-even point was 36000 units. Coronado's margin of safety ratio is

150%

Which two methods are used most often when establishing a transfer price?

Cost-based transfer pricing and market-based transfer pricing

a fixed cost is a cost which

remains constant in total with changes in the level of activity

which of the following is NOT a true statement?

Incremental analysis is the same as CVP analysis.

If Qualls Quality Airline cuts its domestic fares by 30%,

a profit can be earned either by increasing the number of passengers or by decreasing variable costs

To which function of management is CVP analysis most applicable?

Planning

which is the true statement?

The CVP income statement shows contribution margin instead of gross profit.

In most cases, prices are set by the

competitive market

margin of safety in dollars is

expected sales less break-even sales.

Which cost is not charged to the product under variable costing?

fixed manufacturing overhead

Which is the first step in the management decision-making process?

identify the problem and assign responsibility

The process of evaluating financial data that change under alternative courses of action is called

incremental analysis

A revenue that differs between alternatives and makes a difference in decision-making is called a(n)

incremental revenue

The first step for time-and-material pricing is to calculate the

labor charge per hour

Internal reports that review the actual impact of decisions are prepared by

management accountants

the margin of safety ratio is

margin of safety in dollars divided by expected sales.

A shift from low-margin sales to high-margin sales

may increase net income, even if there is a decline in total sales

In a sales mix situation, at any level of units sold, net income will be higher if

more higher contribution margin units are sold than lower contribution margin units.

the desired ROI per unit is calculated by

multiplying the ROI by the investment and dividing by the estimated volume.

In a CVP income statement, a selling expense is generally

partly a variable cost and partly a fixed cost

Companies that sell products whose prices are set by market forces are called

price takers

For analysis purposes, the high-low method usually produces a(n)

reasonable estimate

The calculation to determine target cost is

sales price - desired profit

A company must price its product to cover its costs and earn a reasonable profit in

the long run

sales mix

the relative percentage in which a company sells its multiple products

In cost-plus pricing, the markup percentage is computed by dividing the desired ROI per unit by the

total cost per unit

A cost which remains constant per unit at various levels of activity is a

variable cost

Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price?

when incremental revenues exceed incremental costs