Chapter 12 and 16S

An opportunity cost is: A) Income forgone because an opportunity to earn income was not pursued. B) Never relevant in decision-making. C) A cost that cannot be avoided. D) A cost that has been incurred and cannot be reversed by some future action. E) Present in every decision-making situation.

A) Income forgone because an opportunity to earn income was not pursued.````

Which of the following will increase a company's break-even point? A) Increasing variable cost per unit. B) Decreasing variable cost per unit. C) Reducing total fixed costs. D) Increasing selling price per unit. E) Increasing contribution margin per unit.

A) Increasing variable cost per unit.

Chuck's investment proposal would be inferior to Edna's proposal if it was expected to have a: A) Longer payback period. B) Higher accounting rate of return. C) Higher internal rate of return. D) Higher profitability index. E) Larger net present value.

A) Longer payback period.

Activities included in a generally accepted definition of the management process include: A) Planning, organizing, controlling. B) Planning, operating, reporting. C) Preparing, operating, creating. D) Preparing, organizing, converting. E) None of the above.

A) Planning, organizing, controlling.

The contribution margin income statement: A) Reports expenses based upon cost behavior pattern rather than cost function. B) Unitizes fixed costs. C) Shows contribution margin rather than operating income as the bottom line. D) Is sometimes used for financial reporting purposes. E) None of the above.

A) Reports expenses based upon cost behavior pattern rather than cost function.`

Contribution margin can be expressed as: A) Sales minus variable expenses. B) Sales minus cost of goods sold. C) Sales minus fixed expenses. D) The level of sales required to cover variable expenses. E) The level of sales required to cover fixed and variable expenses.

A) Sales minus variable expenses.

Cost behavior refers to: A) Costs that are both good and bad. B) Costs that are variable or fixed. C) Costs that decrease at a quicker rate than others. D) Costs that increase at a quicker rate than others. E) None of the above.

B) Costs that are variable or fixed.

At the break-even point: A) Fixed cost is always less than the contribution margin. B) Fixed cost is always equal to the contribution margin. C) Fixed cost is always more than the contribution margin. D) Fixed cost is always more than variable cost. E) Fixed cost is always equal to variable cost.

B) Fixed cost is always equal to the contribution margin.

he cost of capital used in the capital budgeting process is primarily a function of: A) ROE. B) ROI. C) The cost of borrowing the funds that will be invested. D) The discount rate. E) None of the above.

B) ROI.

Managerial accounting, as opposed to financial accounting, is primarily concerned with: A) The financial condition of the organization as a whole. B) Meeting the requirements of generally accepted accounting principles. C) Emphasizing the future. D) Providing data for investors and creditors. E) Determining exact results.

C) Emphasizing the future.

A capital budgeting technique that considers the time value of money is the: A) Accounting rate of return. B) Payback period. C) Internal rate of return. D) Return on investment. E) None of the above.

C) Internal rate of return.

The type of costs included in a management analysis relating to a capital budgeting decision should be limited to: A) Controllable costs. B) Standard costs. C) Relevant costs. D) Committed costs. E) Discretionary costs.

C) Relevant costs.

Which of the following costs classifications would not be considered relevant in comparing decision alternatives? A) Opportunity cost. B) Differential cost. C) Sunk cost. D) Incremental cost. E) None of the above.

C) Sunk cost.

he relevant range concept refers to: A) A firm's range of profitability. B) A firm's range of sales. C) A firm's range of rates of return. D) A firm's range of activity. E) A firm's range of expenses.

D) A firm's range of activity.

In considering whether to accept a special order at a price less than the normal selling price of the product, but the additional sales will make use of presently idle capacity, which of the following costs will not be relevant? A) Fixed manufacturing overhead that can be avoided. B) Direct materials. C) Variable overhead. D) Depreciation of the manufacturing plant. E) Direct labor.

D) Depreciation of the manufacturing plant

Cost-volume-profit analysis assumes fixed costs: A) Remains constant on a per unit basis as activity changes. B) Remains constant from one period to the next. C) Increases in total as activity increases. D) Remains constant as activity changes. E) None of the above.

D) Remains constant as activity changes.

If the net present value of a proposed investment is positive: A) The investment will not be made. B) The cost of capital is higher that the internal rate of return. C) The internal rate of return is lower than the cost of capital. D) The cost of capital is lower that the internal rate of return. E) The internal rate of return is zero.

D) The cost of capital is lower that the internal rate of return.

Which of the following is the correct calculation for the contribution margin ratio? A) Revenue divided by variable costs. B) Revenue divided by contribution margin. C) Contribution margin divided by variable costs. D) Contribution margin divided by fixed costs. E) Contribution margin divided by revenue.

E) Contribution margin divided by revenue.

If the discount rate used to evaluate a capital budgeting project is equal to the project's internal rate of return, the project's: A) Payback period is less than the useful life of the project. B) Profitability index is negative. C) Accounting rate of return is greater than the internal rate of return. D) Present value of the cash outflows exceeds the present value of the cash inflows. E) Net present value is zero.

E) Net present value is zero.

The concept of operating leverage refers to which of the following? Operating income changes proportionately less than income for any given change in activity level. Operating income changes proportionately less than revenues for any given change in activity level. Operating income changes proportionately more than revenues for any given change in activity level. Operating income changes proportionately more than income for any given change in activity level.

Operating income changes proportionately more than revenues for any given change in activity level.

An example of a cost likely to have a fixed behavior pattern is: production labor wages. advertising cost. electricity cost for packaging equipment. sales force commission.

advertising cost.

A sunk cost is a cost that: has been incurred and cannot be eliminated. is never relevant in decision-making. is never a differential cost. all of the above.

all of the above.

the amount of revenue required to have neither operating profit nor operating loss

break-even point

the difference between revenues and variable costs

contribution margin

an income statement format in which variable costs are subtracted from revenues to show contribution margin, from which fixed costs are subtracted to determine operating income

contribution margin format

The decision for solving production mix problems involving multiple products and scarce production resources should focus on: gross profit of each product. sales price of each product. contribution margin of each product. contribution margin per unit of scarce resource.

contribution margin per unit of scarce resource.

the ratio of contribution margin to revenues

contribution margin ratio

identification of whether a cost is fixed or variable

cost behavior pattern

an algebraic expression that reflects the fixed and variable elements of a cost

cost formula

analysis of the impact on profit of volume and cost changes using knowledge about the behavior pattern of the costs involved

cost-volume-profit (CVP) analysis

An example of a cost likely to have a mixed behavior pattern is: depreciation of production equipment. sales force commission. raw material cost. electricity cost for the manufacturing plant.

electricity cost for the manufacturing plant.

a cost that does not change in total as the level of activity changes within the relevant range

fixed cost

Expressing fixed costs on a per unit basis of activity is misleading because: fixed cost per unit increase as activity increases. total fixed costs increase as activity increases. fixed cost per unit decrease as activity increases. total fixed costs decrease as activity decreases.

fixed cost per unit decrease as activity increases.

The scattergram allows cost-volume relationships to be visually scanned for outlier observations that should be: included in the calculation of the variable rate component of the mixed cost. ignored in the calculation of the cost formula of a mixed cost. included in the calculation of the fixed cost component of the mixed cost. included in the calculation of the cost formula of a mixed cost.

ignored in the calculation of the cost formula of a mixed cost.

the activity level that produces the same total cost when two different cost formulas or cost structures exist

indifference point

planning, organizing, and controlling the activities of an organization so it can accomplish its purpose

management process

accounting that uses economic and financial information to plan and control many activities of the entity and to support the management decision-making process. Sometimes called management accounting

managerial accounting

the amount by which current sales exceed break-even sales, providing a relative measure of risk before an operating loss would be incurred

margin of safety

the concept that operating income changes proportionately more than revenues for any change in the level of activity given the relative trade-off of variable versus fixed costs in a firm's cost structure

operating leverage

expected or allowed times and costs to make a product or perform an activity

production standard

the range of activity over which the fixed or variable cost behavior pattern exists

relevant range

When a cost formula is used to describe a mixed (semi-variable) cost behavior pattern, total costs are expected to increase and per unit variable costs are expected to: remain constant as the level of activity increases. decrease as the level of activity increases. decrease as the level of activity decreases. increase as the level of activity increases.

remain constant as the level of activity increases.

the proportion of total sales represented by various products or categories of products

sales mix

a cost that has both fixed and variable elements -- a mixed cost `

semi variable cost

Which of the following is another term for mixed costs? semifixed costs. semivariable costs. component costs. none of the above.

semivariable costs.

The contribution margin format income statement: uses a behavior pattern classification for costs rather than a functional cost classification approach. emphasizes that all costs change in proportion to any change in revenues. is most frequently used for financial statement reporting purposes. results in a larger amount of operating income than the traditional income statement format.

uses a behavior pattern classification for costs rather than a functional cost classification approach.

a cost that changes in total as the volume of activity changes

variable cost