Multi Choice Accounting Final

H55 Company sells two products, beer and wine. Beer has a 10 percent profit margin and wine has a 12 percent profit margin. Beer has a 27 percent contribution margin and wine has a 25 percent contribution margin. If customers want to buy only one product and beer sells for $4, while wine sells for $5, which product should H55 push to customers? A. Beer . B. Wine C. The product that has the higher sales price D. It should sell an equal quantity of both. E. Selling either results in the same additional income for the company.

. B. Wine

Bob's Brownies sells 2 types of brownies. A customer wants to buy $200 of brownies for an office party. What amount Bob should calculate in order to determine which product to 'push' to the customer in order to maximize profit? A. Contribution margin ratio B. Gross margin ratio C. Operating income D. Contribution margin per unit E. Gross margin per unit

A. Contribution margin ratio Because the customer's purchase will generate a total sales revenue amount of $200, the company should maximize the profit it generates from each sales dollar....measured by the contribution margin ratio.

12. Which one of the following would most likely be considered a mixed cost for a car wash? A. Cost of the cell phone for the supervisor B. Cost of property insurance on the building that houses the car wash operation C. Cost of water used by a car wash D. Cost of depreciation of the conveyor belt

A. Cost of the cell phone for the supervisor Cell phones costs often consist of a flat cost plus an extra charge for data usage. A mixed cost consists of both a variable and fixed component. Property insurance and depreciation do not change in total when more cars are washed, so they are considered solely fixed costs. Water consumption increases when more cars are washed so it is considered a variable cost.

In CVP analysis, what does the term "cost" mean? A. It includes all product costs and operating expenses. B. It includes only product costs. C. It includes all costs that are part of cost of goods sold, plus all costs that provide future benefits. D. It includes all fixed and variable costs of products, and excludes all selling costs.

A. It includes all product costs and operating expenses.

Which one of the following is a relatively accurate method of analyzing cost behavior that relies on an analysis of all cost levels? A. Regression analysis B. Relevant range approach C. Scatter diagram approach D. High-low analysis

A. Regression analysis

Why do managers use scattergraphs? A. To estimate the relation between cost and activity B. To verify actual costs incurred during the period C. To determine the profitability of a company or division D. To calculate break even amounts

A. To estimate the relation between cost and activity

Why do managers use regression analysis in accounting? A. To estimate the relation between cost and activity B. To determine the gross margin of a company's products C. To determine the profitability of a company or division D. To calculate break even amounts

A. To estimate the relation between cost and activity Regression analysis produces a total cost equation that a company can use to estimate future costs. Since activity drives costs, a company can estimate its cost at any level of activity once the cost equation is determined. Answer B is wrong because gross margin is not based on how costs behave, it is based on their function--product versus period.

When graphing cost-volume-profit data on a CVP graph A. Units are plotted on the horizontal axis; costs on the vertical axis B. Units are plotted on the vertical axis; costs on the horizontal axis C. Both units and costs are plotted on the horizontal axis. D. Both units and cost are plotted on the vertical axis

A. Units are plotted on the horizontal axis; costs on the vertical axis

The full costing income statement focuses on A. cost function. B. cost behavior. C. the contribution margin. D. variable costing.

A. cost function.

. A mixed cost A. fluctuates between fixed to variable from period to period. B. changes in proportion to changes in volume both in unit and in total. C. includes both a variable cost component and a fixed cost. D. is omitted from CVP analysis since it does not fit either fixed or variable categories.

A. fluctuates between fixed to variable from period to period.

The cost estimation method that uses all relevant data points is A. regression analysis B. scatter graphs C. high-low method D. A, B, and C E. Both A and C

A. regression analysis

Why is identification of a relevant range important? A. It is required under GAAP. B. Cost behavior outside of the relevant range is not linear, which distorts CVP analysis. C. It directly impacts the number of units of a product a customer buys. D. It is a cost that is incurred by a company that must be accounted for

B. Cost behavior outside of the relevant range is not linear, which distorts CVP analysis.

Which is true as it relates to fixed costs? A. Total fixed cost increases as production/sales increase B. Fixed cost per unit declines as production/sales increases. C. Fixed cost per unit increases as production/sales increases. D. Total fixed cost declines as production/sales increase

B. Fixed cost per unit declines as production/sales increases.

Walgreens is deciding whether to offer flu shots for $22 instead of its normal rate of $25 per shot. This is expected to increase the demand for flu shots. Which one of the following is an incremental cost for this decision? A. The cost of electricity used for lighting the Walgreens facility B. The cost of syringes used to dispense the shots C. The salary of the receptionist that checks in patients that want flu shots D. The difference between the $22 and $25 amounts that Walgreens will charge

B. The cost of syringes used to dispense the shots An incremental cost is a cost that differs between decisions. Since more shots will be demanded, more syringes will be used, creating an additional cost. Answer A is wrong because administering more shots does not consume more electricity. Answer C is wrong because salaries are fixed and do not change when activity changes. Answer D is wrong because a change in revenue is not a cost (though it is incremental.)

For what purpose is regression analysis used in accounting? A. To determine the break even point B. To estimate the behavior of costs C. To allocate costs to products, services, jobs, or departments. D. To determine how profitably the companies activities are.

B. To estimate the behavior of costs

For what purpose is the high low method primarily used? A. To analyze the behavior of fixed costs B. To separate mixed costs into the fixed and variable portions C. To analyze the behavior of variable costs D. To determine how much to price products

B. To separate mixed costs into the fixed and variable portions

In the graph of CVP, the breakeven point is the A. point where the variable costs line crosses the fixed costs line. B. point where the sales revenue line crosses the total costs line. C. point where the variable costs line crosses the sales line. D. point where the variable cost line, the fixed cost line, and the sales line all meet.

B. point where the sales revenue line crosses the total costs line.

A significant weakness of the high-low method is that A. a significant amount of management expertise is necessary to break out the variable and fixed costs. B. the two data points that are used may not be representative of the general relation between cost and activity. C. the calculations are so complex that a computer is usually necessary in order to get accurate results. D. monthly data must be collected for at least three years before the method can be used.

B. the two data points that are used may not be representative of the general relation between cost and activity.

Which item appears on a variable costing income statement but not on a full costing income statement? A. Operating expenses B. Sales C. Contribution margin D. Gross profit

C. Contribution margin

MRC Exports sells pans with a contribution margin rate of 38% and a unit contribution margin of $6 per unit. Which statement is true? A. Each pan sold generates $6 to cover operating expenses and contribute toward profit. B. Each pan sold generates $6 of revenue to cover fixed costs and go towards profit. C. Each dollar of sales revenue generates 38 cents to go towards covering fixed costs and towards profit. D. Each dollar of sales revenue generates 38 cents to go towards covering operating costs and towards profit. E. Each pan sold generates 38 cents to go towards covering fixed costs and towards profit.

C. Each dollar of sales revenue generates 38 cents to go towards covering fixed costs and towards profit. Answer A describes the gross margin per unit. Answer B is wrong because in order to have a variable cost greater than zero, revenue must be larger than contribution margin, i.e., revenue does not equal contribution margin. Answer D describes the gross margin ration. Answer E describes the contribution margin per unit, though the amount should be $6 per unit, not 38 center per unit.

Which of the following statements are false? A. When a company has limited resources, management must decide which products to make and sell in order to maximize sales. B. When there is a constraint, the focus shifts from the contribution margin per unit to the contribution margin per unit of the constraint. C. In order to maximize profits, a company must produce the products with the highest profit margin per unit of constrained resource. D. When there is a constraint, the focus shifts from the contribution margin percentage to the contribution margin per unit of limited resource.

C. In order to maximize profits, a company must produce the products with the highest profit margin per unit of constrained resource.

In cost analysis, what does the term "cost" mean? A. It includes all fixed and variable costs of products, and excludes all period costs. B. It includes all costs which are part of cost of goods sold, plus variable operating expenses. C. It includes all product costs and operating expenses. D. It includes only product costs.

C. It includes all product costs and operating expenses.

Which statement describes a fixed cost? A. It varies in total at every level of activity. B. The unit cost varies directly to the activity level. C. Its unit cost varies inversely to the level of activity. D. It remains the same per unit regardless of activity level.

C. Its unit cost varies inversely to the level of activity.

During 2011, 6,000 units were produced and sold. Which of the following statements is true when comparing net income under GAAP versus net income using variable costing? A. Net income will be higher using GAAP compared to using variable costing. B. Net income will be lower using GAAP compared to using variable costing. C. Net income will be the same under both costing methods. D. It depends on the level of sales volume.

C. Net income will be the same under both costing methods.

What is the best explanation for the use of regression analysis by accountants? A. Regression analysis provides the exact measure of variable costs. B. Regression analysis is more difficult to use than the high-low method. C. Regression analysis provides an estimate based upon statistical measures. D. Regression analysis produces a graph that is just as accurate as a manually prepared graph.

C. Regression analysis provides an estimate based upon statistical measures.

What is a relevant range of activity? A. The geographical locations in which the company operates B. The activity level at which profits are maximized C. The levels of activity over which the company expects to operate D. The level of activity in which all costs are constant

C. The levels of activity over which the company expects to operate

Which of the following will have no effect on the break-even point in units? A. The selling price per unit increases B. The variable cost per unit increases C. The sales volume increases D. Total fixed costs increase

C. The sales volume increases The profit equation require three components: the selling price per unit, the variable cost per unit, and total fixed costs. Changing any of these three amount changes the breakeven point. The sales volume expected has no effect on the breakeven point.

When 200 gallons of ice cream are produced, the total cost is $200. When 300 gallons of ice cream are produced, the total cost is $250. Which of the following statements is true? A. This company has only fixed costs B. This company has only variable costs C. This company has both variable and fixed costs D. It is impossible to determine this company's cost structure without more information.

C. This company has both variable and fixed costs

Which of the following best describes the relationship between total fixed costs and total variable costs, as total volume decreases? A. Total fixed costs and total variable costs stay the same. B. Total fixed costs decrease and total variable costs stays the same. C. Total fixed costs stays the same and total variable costs decrease. D. Total fixed costs decrease and total variable costs decrease.

C. Total fixed costs stays the same and total variable costs decrease.

Which of the following best describes the relationship between total fixed costs and total variable costs, as total volume decreases? A. Total fixed costs stays the same and total variable costs stays the same. B. Total fixed costs decreases and total variable costs stays the same. C. Total fixed costs stays the same and total variable costs decrease. D. Total fixed costs decrease and total variable costs decrease.

C. Total fixed costs stays the same and total variable costs decrease.

Which one of the following is NOT a constraint on how many items can be produced? A. Space available for production B. Qualified technical labor available C. Total production cost D. Production time available

C. Total production cost

When units produced and total production costs are graphed, the result is called A. incremental analysis. B. a profit graph. C. a scatter graph D. a CVP analysis graph

C. a scatter graph

The break-even point is the point where A. total sales revenue equals total expenses. B. total contribution margin equals total fixed expenses. C. both A and B are true. D. neither A nor B is true.

C. both A and B are true.

Cost-volume-profit analysis assumes all EXCEPT A. all costs are variable or fixed. B. units manufactured equal units sold. C. total variable costs remain the same over the relevant range. D. total fixed costs remain the same over the relevant range.

C. total variable costs remain the same over the relevant range.

What most likely occurs when variable costs per unit increase? A. The breakeven point will decrease B. The selling price will decrease C. The fixed cost per unit increase D. Breakeven sales will increase

D. Breakeven sales will increase

Mix, Inc. was calculating the break-even point in sales revenue for one of its 5 products in its product line. Which of the following pieces of information is not relevant? A. Each product's proportion of total sales revenue B. Total fixed costs C. Weighted average contribution margin ratio D. Contribution margin per unit of each product

D. Contribution margin per unit of each product When more than one product exists, a company must know its weighted average contribution margin ratio (answer C) and total fixed costs (answer B) to determine the breakeven point for all the products in total. The revenue sales mix (answer A) is then used to determine the number of units for a specific product. Only totals are used, not individual contribution margin amounts.

Why must a company determine what its relevant range is? A. It directly impacts the indirect cost allocated to a product or service. B. It is a relevant cost. C. GAAP requires companies to report this information. D. Cost behavior outside of the relevant range is generally distorted

D. Cost behavior outside of the relevant range is generally distorted

Which one of the following is true concerning a CVP income statement? A. Costs and expenses are classified by product versus period. B. It is prepared for both internal and external use. C. It shows gross margin. D. Costs are classified based on behavior.

D. Costs are classified based on behavior.

Which one of the following is NOT a constraint on how many items can be produced? A. Space available for production B. Equipment use available C. Qualified labor available D. Fixed costs incurred

D. Fixed costs incurred

Which statement(s) are valid reasons that a either fixed or variable cost behavior can be ruled out when information on three data points is provided? I. The total cost differs at the three activity levels. - Rules out fixed cost behavior. II. The unit cost differs at the three activity levels. - Rules out variable cost behavior III. The volume of activity changed from one period to the next. A. I, II, and III D. I and II B. II and III E. Only III C. I and III

D. I and II

Why is identification of a relevant range important? A. Product costs are higher outside of the relevant range. B. Cost behavior outside of the relevant range is linear, which distorts CVP analysis. C. It directly impacts the number of units of product a company must sell to breakeven. D. It allows a company to rely on cost behavior for planning purposes.

D. It allows a company to rely on cost behavior for planning purposes. A relevant range is the normal operating range of activity in which cost behavior can be relied upon because it is linear.

A business's normal operating range, which excludes extremely high and low volumes that are not likely to be encountered, is the A. Margin of safety. B. Contribution margin. C. Break-even point. D. Relevant range

D. Relevant range

Why do management accountants use regression analysis and the high-low method? A. To verify actual costs incurred during the period. B. To determine the profitability of a company or division C. To calculate break even amounts D. To estimate the relation between cost and activity

D. To estimate the relation between cost and activity

Which one of the following is NOT a constraint on how many items can be produced? A. Space available for production B. Production time available C. Qualified technical labor available D. Total cost of production

D. Total cost of production

Which of the following statements is true when comparing operating income under absorption costing versus operating income using variable costing when the units produced equal the units sold? A. Net income will be lower using full costing compared to using variable costing. B. Net income will be higher using full costing compared to using variable costing. C. It depends on the number of units sold. D. It depends on the amount of product versus period costs. E. Net income will be the same under full costing and variable costing.

E. Net income will be the same under full costing and variable costing. The costs on the two statements does not differ; they are just located in different sections of the income statements.

What type of information does the high-low method usually produce? a. A reasonable estimate of variable and fixed costs b. A very precise estimate of the behavior of the costs c. A very conservative estimate of costs for analysis purposes d. A exact calculation of variable and fixed costs to be incurred

a. A reasonable estimate of variable and fixed costs

Which of the following is most likely a mixed cost? a. Car rental fee b. Storage unit rent c. Equipment depreciation d. Direct labor

a. Car rental fee

Costs that remain constant in total dollar amount as the level of activity changes and cost that remains constant per unit in dollar amount as the level of activity changes are called (respectively) a. fixed costs and variable costs b. mixed costs and fixed costs c. mixed costs and variable costs d. variable costs and fixed costs

a. fixed costs and variable costs

Costs that remain constant in total dollar amount as the level of activity changes and costs that remain constant per unit as the level of activity changes are called (respectively) a. fixed costs and variable costs b. mixed costs and fixed costs c. mixed costs and variable costs d. variable costs and fixed costs

a. fixed costs and variable costs

Which of the following describes the behavior of the fixed costs per unit? a. Decreases with decreasing production b. Decreases with increasing production c. Remain constant with changes in production d. Increases with increasing production

b. Decreases with increasing production

Contribution margin and contribution margin ratio are (respectively) a. also called variable costs and the variable costs ratio. b. the excess of sales revenue over variable cost and contribution margin divided by sales. c. also called gross margin and the gross margin ratio. d. the same as sales revenue and the same as the profit-volume ratio.

b. the excess of sales revenue over variable cost and contribution margin divided by sales.

In cost analysis, what does the term "cost" mean? a. It includes all fixed and variable costs of products. b. It includes all costs which are part of cost of goods sold. c. It includes manufacturing costs plus selling and administrative expenses. d. It includes all manufacturing costs.

c. It includes manufacturing costs plus selling and administrative expenses.

Why is the high-low method frequently not as accurate as regression analysis? a. It assumes managers have classified costs correctly. b. It uses analytical techniques which are questionable. c. It assumes that costs behave linearly. d. It uses extreme points which may not be representative of the rest of the data.

d. It uses extreme points which may not be representative of the rest of the data.

What is cost behavior? a. The way management chooses to estimate its costs b. The method used to allocate costs to products c. How a cost is used in setting selling prices d. The manner in which a cost changes as the related activity changes

d. The manner in which a cost changes as the related activity changes