Exam 3

Question 1

When a company is operating at its breakeven point

A.
its contribution margin will be equal to its variable expenses.
B.
its selling price will be equal to its variable expense per unit.
C.
its fixed expenses will be equal to its variable expenses.
D.
its total revenues will be equal to its total expenses.

Answer 1

D.
its total revenues will be equal to its total expenses.

Question 2

Total contribution margin less total fixed expenses equals

A.
sales revenue.
B.
gross profit.
C.
contribution margin ratio.
D.
operating income.

Answer 2

D.
operating income.

Question 3

If a company sells one unit above its breakeven​ sales, then its operating income would be equal to

A.
the unit contribution margin.
B.
the unit selling price.
C.
the fixed expenses.
D.
zero.

Answer 3

A. the unit contribution margin.

Question 4

How is the sales volume in dollars necessary to reach a target profit​ calculated?

A.
target profit divided by contribution margin ratio
B.
target profit divided by unit contribution margin
C.
​(fixed expenses​ + target​ profit) divided by unit contribution margin
D.
​(fixed expenses​ + target​ profit) divided by contribution margin ratio

Answer 4

D.
​(fixed expenses​ + target​ profit) divided by contribution margin ratio

Question 5

The number of units to be sold to reach a certain target profit is calculated as

A.
​(fixed expenses​ + target​ profit) divided by contribution margin ratio
B.
​(fixed expenses​ + target​ profit) divided by unit contribution margin
C.
target profit divided by unit contribution margin
D.
target profit divided by contribution margin ratio

Answer 5

B.
​(fixed expenses​ + target​ profit) divided by unit contribution margin

Question 6

The breakeven point on a CVP graph is

A.
the intersection of the sales revenue line and the​ y-axis.
B.
the intersection of the sales revenue line and the total expense line.
C.
the intersection of the fixed expense line and the sales revenue.
D.
the intersection of the fixed expense line and the total expense line.

Answer 6

B.
the intersection of the sales revenue line and the total expense line.

Question 7

If the sales price of a product increases while everything else remains the​ same, what happens to the breakeven​ point?

A.
The breakeven point will increase.
B.
The breakeven point will remain the same.
C.
The breakeven point will decrease.
D.
The effect cannot be determined without further information.

Answer 7

C.
The breakeven point will decrease.

Question 8

Target profit analysis is used to calculate the sales volume that is needed to

A.
avoid a loss.
B.
earn a specific amount of net operating income.
C.
cover all fixed expenses.
D.
cover all expenses.

Answer 8

B.
earn a specific amount of net operating income.

Question 9

A shift in the sales mix from a product with a high contribution margin ratio toward a product with a low contribution margin ratio will cause the breakeven point to

A.
increase.
B.
increase or​ decrease, but the direction of the change cannot be determined from the information given.
C.
decrease.
D.
remain the same.

Answer 9

A.
increase.

Question 10

What is the margin of​ safety?

A.
the excess of expected sales over breakeven sales
B.
the sales level at which operating income is zero
C.
the amount of fixed and variable costs that make up a​ company’s total costs
D.
the difference between the sales price per unit and the variable cost per unit

Answer 10

A.
the excess of expected sales over breakeven sales

Question 11

All of the following would be considered a company with high operating​ leverage, except ​a(n)

A.
airline company.
B.
hotel chain.
C.
amusement park.
D.
​t-shirt kiosk in a mall.

Answer 11

D.
​t-shirt kiosk in a mall.

Question 12

The process of experimenting with base​ case, best​ case, and worst case scenarios to see what would happen to company profits under those conditions would be an example of

A.
target profit analysis.
B.
scenario analysis.
C.
breakeven analysis.
D.
sequencing analysis.

Answer 12

B.
scenario analysis.

Question 13

When making​ decisions, managers should consider

A.
costs that do not differ between alternatives.
B.
only variable costs.
C.
sunk costs.
D.
revenues that differ between alternatives.

Answer 13

D.
revenues that differ between alternatives.

Question 14

In making​ short-term special​ decisions, the​ decision-maker should

A.
use a traditional absorption costing approach.
B.
separate variable costs from fixed costs.
C.
focus on total costs.
D.
focus only on quantitative factors.

Answer 14

B.
separate variable costs from fixed costs.

Question 15

Which of the following costs is irrelevant to business​ decisions?

A.
Variable costs
B.
Costs that differ between alternatives
C.
Avoidable costs
D.
Sunk costs

Answer 15

D.
Sunk costs

Question 16

When pricing a​ product, managers must consider which of the following​ costs?

A.
All costs
B.
Only manufacturing costs
C.
Only period costs
D.
Only variable costs

Answer 16

A.
All costs

Question 17

Which of the following costs is relevant to Paper​ Mart’s decision to accept a special order at a lower sales price from a large​ customer?

A.
The cost of shipping the order to the customer
B.
The cost of Paper​ Mart’s warehouses located across the United States
C.
The cost of maintaining Paper​ Mart’s website
D.
Paper​ Mart’s CEO’s salary

Answer 17

A.
The cost of shipping the order to the customer

Question 18

Kent Embroidery Company has received a special sales order from Mahoney County for a large order. The incremental fixed costs that will be incurred to create a new pattern that can only be used for this order are

A.
relevant to the decision to accept the special order.
B.
opportunity costs.
C.
irrelevant to the decision to accept the special order.
D.
sunk costs.

Answer 18

A.
relevant to the decision to accept the special order.

Question 19

When deciding whether to drop its CD label​ line, Avery Products Corporation would consider

A.
the costs it could save by dropping the product line.
B.
the revenues it would lose from dropping the product line.
C.
how dropping the CD label product line would affect sales of its other label products.
D.
all of the listed items should be considered.

Answer 19

D.
all of the listed items should be considered.

Question 20

Common fixed costs that are allocated among departments are generally

A.
irrelevant to the decision of whether to discontinue the department.
B.
direct fixed costs of other departments.
C.
direct fixed costs of the department.
D.
relevant to the decision of whether to discontinue the department.

Answer 20

A.
irrelevant to the decision of whether to discontinue the department.

Question 21

To maximize its total contribution margin when it has a limited supply of the mineral​ nickel, Telsa,​ Inc., should focus on producing the car model that has the highest

A.
profit per unit of product.
B.
contribution margin per unit of product.
C.
contribution margin ratio.
D.
contribution margin per pound of nickel.

Answer 21

D.
contribution margin per pound of nickel.

Question 22

When making outsourcing decisions

A.
the manufacturing full unit cost of making the produce​ in-house is relevant.
B.
avoidable fixed costs are irrelevant.
C.
the variable cost producing the product​ in-house is relevant.
D.
expected use of the freed capacity is irrelevant.

Answer 22

C.
the variable cost producing the product​ in-house is relevant.

Question 23

When deciding whether to sell banana powder as is or to process further to make banana bread​ mix, managers should ignore which of the​ following?

A.
The revenue if the banana powder is sold as is
B.
The revenue if the banana powder is processed further to make banana bread mix
C.
The cost of processing the banana powder further to make banana bread mix
D.
The costs of processing the banana powder thus far

Answer 23

D.
The costs of processing the banana powder thus far

Question 24

Budget committees would include all of the following people except a

A.
human resources manager.
B.
shareholder.
C.
chief financial officer.
D.
product manager.

Answer 24

B.
shareholder.

Question 25

A company expects to receive which of the following benefits when it uses its budgeting​ process?

A.
The budget helps to motivate employees to achieve the​ company’s sales growth and cost reduction goals.
B.
The planning required to develop the budget helps managers foresee and avoid potential problems before they occur.
C.
The budget provides the​ company’s managers with a benchmark against which to compare actual results for performance evaluation.
D.
All the listed items are benefits of the budget process.

Answer 25

D.
All the listed items are benefits of the budget process.

Question 26

Budgets are

A.
required by U.S. Generally Accepted Accounting Principles​ (GAAP).
B.
prepared by the controller for the entire organization.
C.
future oriented.
D.
only used by large corporations.

Answer 26

C.
future oriented.

Question 27

Which of the following is the starting point for the comprehensive​ budget?

A.
The sales budget
B.
The direct materials budget
C.
The production budget
D.
The operating expenses budget

Answer 27

A.
The sales budget

Question 28

The income statement is part of which element of a​ company’s comprehensive​ budget?

A.
The operating budgets
B.
The financial budget
C.
The cash budget
D.
The capital expenditures budget

Answer 28

A.
The operating budgets

Question 29

The usual starting point for a direct labor budget for a manufacturer is the

A.
sales budget.
B.
cash budget.
C.
direct materials budget.
D.
production budget.

Answer 29

D.
production budget.

Question 30

Which of the following expenses would not appear in a cash​ budget?

A.
Depreciation expense
B.
Marketing expense
C.
Interest expense
D.
Wages expense

Answer 30

A.
Depreciation expense

Question 31

The following budgets are all financial budgets except for the

A.
budgeted balance sheet.
B.
capital expeditures budget.
C.
combined cash budget.
D.
budgeted income statement.

Answer 31

D.
budgeted income statement.

Question 32

Contribution Margin Ratio

Answer 32

Unit CM / sales price per unit

Question 33

Contribution Margin

Answer 33

sales revenue - variable espenses

Question 34

operating income

Answer 34

CM - fixed expenses

Question 35

breakeven using the unit contribution margin

Answer 35

sales in units = (Fixed expeses + operating income) / contribution margin per unit

Question 36

breakeven using the contribution margin ratio

Answer 36

sales in dollars = (fixed expenses + operating income) / contribution margin ratio

Question 37

target profit using the contribution margin

Answer 37

sales in units = (fixed expenses + operating income) / contribution margin per unit

Question 38

target profit using unit contribution margin ratio