business test 12/05

Question 1

If a business decreases its sales price per unit and all other variables remain unchanged, what will be the effect on the break-even point?

Answer 1

Break-even point will become higher

Question 2

If a business decreases its variable cost per unit and all other variables remain unchanged, what will be the effect on the break-even point?

Answer 2

Break-even point will become lower

Question 3

If a business increases its fixed costs and all other variables remain unchanged, what will be the effect on the break-even point?

Answer 3

Break-even point will become higher

Question 4

If a business increases its sales price per unit and all other variables remain unchanged, what will be the effect on the break-even point?

Answer 4

Break-even point will become lower

Question 5

What is the formula for target output?

Answer 5

(target profit + fixed costs) divided by contribution per unit

Question 6

What is the formula for profit?

Answer 6

(output x contribution per unit) - fixed costs

Question 7

What is the margin of safety?

Answer 7

The difference between the current or forecasted quantity of output and the current or forecasted break-even quantity

Question 8

What is break-even quantity?

Answer 8

The quantity of output where total revenue equals total cost

Question 9

What is the formula for contribution per unit?

Answer 9

Price per unit minus variable cost per unit

Question 10

What does every level of sales quantity above the break-even point result in?

Answer 10

Profit

Question 11

Which of the following is a use of break-even analysis?

Answer 11

Financing decisions by potential lenders or equity investors

Supporting a company’s business plan

Strategy decisions

Question 12

Which of the following is a limitation of break-even analysis?

Answer 12

Costs and revenues are not linear

Question 13

Which of the following is a use of contribution analysis?

Answer 13

Make or buy analysis

Determining the break-event point

Choosing which orders to accept

Question 14

Which type of cost is easier to allocate to the contribution calculation?

Answer 14

Direct cost

Question 15

Costs that are used in multiple areas or activities of the business and, therefore, are not traceable to a specific cost object

Answer 15

Indirect cost

Question 16

Precisely traceable to a specific cost object

Answer 16

Direct cost

Question 17

Which costing method is simpler to calculate?

Answer 17

Contribution costing

Question 18

Which costing method provides a more accurate picture of the various contributions of each product to a business’s profits?

Answer 18

Absorption costing

Question 19

A cost accounting method that allocates indirect costs among products, departments or regions based on predetermined criteria such as output, sales revenue, number of employees or the value of the equipment.

Answer 19

Absorption costing

Question 20

A cost accounting method that only considers the direct costs of the product, department or region and their resulting contribution to covering the indirect costs of the business as a whole.

Answer 20

Contribution costing