MD 2 Quiz Questions!

Question 1

Accept Special Order if….

Answer 1

Expected increase in revenues EXCEEDS expected increase in variable and fixed costs.

Question 2

1. Drop a product, department or line if…

2. What are assumed fixed expenses of departments/lines?

Answer 2

1. Lost revenues EXCEED the cost savings from dropping.

2. Salary of dept’s manager & direct costs of advertising

Question 3

Relevant Info

Answer 3

Has a long-term affect on the future
&
Differs among other alternatives

Question 4

CH 8 Q

When making outsourcing decisions the _______ cost of producing the product in house is relevant

Answer 4

Variable Cost

Question 5

CH 8 Q

A “relevant” cost is best described by…

Answer 5

Expected future costs that differ among alternatives

Question 6

CH 8 Q

Which of the following is a sunk cost:

• trade in value of an old vehicle
• operating costs for a new vehicle
• purchase price of a new vehicle
• purchase price of vehicle to trade in

Answer 6

Purchase price of vehicle to trade in…

Cost is in the past and cant be changed.

Question 7

CH 8 Q

In a special order decision, incremental fixed costs that will be incurred if the special order is accepted are..

Relevant or Irrelevant
Opportunity Cost
Sunk Cost

Answer 7

Relevant Cost to the decision

Question 8

What are the three considerations for discontinuing a product/line?

Answer 8

1. Whether the product has a pos. or neg CM
2. Determining if direct fixed costs could be avoided if the product is cancelled
3. Will discontinuing the product affect sales of other products

Question 9

If a per-unit cost remains constant over a wide range of volume the cost is most likely a

Answer 9

Variable Cost

Question 10

The cost per unit decreases as volume increases for what cost behaviors (Fixed, Variable or Mixed)

Answer 10

Fixed and Mixed Costs

NOT Variable Costs

Question 11

Name each part of the Cost Equation

——Y= F+VX—

Answer 11

Y–Total Mixed Cost
V–Variable Cost per unit of Activity
X–Volume of Activity
F-Fixed Cost over given period of time

Question 12

What is included in a CM income statement? In order

Answer 12

Sales Revenue
-VC
= Contribution Margin
-FC
=Operating Income

Question 13

CH 7

Profit=

Answer 13

Revenue- (Variable Cost+ Fixed Cost)

Question 14

CH7

Contribution Margin=

Also:
CM/Unit =
CM % =

Answer 14

Revenues-Variable Cost

CM/Unit= CM/ Total Units
CM%= CM/ Total Revenues

Question 15

CH7
Break Even Point

Units and Sales ($)

Answer 15

In Units– Fixed Cost/CM per Unti

In Sales– (Fixed Expense+ Op. Income)/ CM%

Question 16

CH7

Margin of Safety=

Answer 16

Expected Sales - Break Even Sales

Question 17

Operating Leverage Factor

Answer 17

How much Profit would change if sales changed
%Change in Profit= %change in sales x Op leverage factor

CONTRIBUTION MARGIN/OPERATING INCOME

–Lowest it could be is one (meaning FC=0)

Question 18

High Operating Leverage company means

Answer 18

Higher FC and Lower VC

Also higher risk/reward