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