True/false

Question 1

1) When expressed on a per unit basis, fixed costs can mislead decision makers into thinking of them as variable costs.

⊚ true
⊚ false

Answer 1

true

Question 2

2) To estimate what the profit will be at various levels of sales volume, multiply the number of units to be sold above or below the break-even point by the unit contribution margin.
⊚ true
⊚ false

Answer 2

True

Question 3

3) The total volume in sales dollars that would be required to attain a given target profit is determined by dividing the target profit by the contribution margin ratio.
⊚ true
⊚ false

Answer 3

False

Question 4

4) Two companies with the same margin of safety in dollars will also have the same total contribution margin.
⊚ true
⊚ false

Answer 4

False

Question 5

5) Fawn Company’s margin of safety is $90,000. If the company’s sales drop by $80,000, it will still have positive net operating income.
⊚ true
⊚ false

Answer 5

True

Question 6

6) The margin of safety is the amount by which sales can decrease before losses are incurred by the company.
⊚ true
⊚ false

Answer 6

True

Question 7

7) The engineering approach to the analysis of mixed costs involves a detailed statistical analysis of cost behavior using methods that minimize the squared errors.
⊚ true
⊚ false

Answer 7

False

Question 8

8) A major advantage of the high-low method of cost estimation is that it omits all data from the analysis other than the lowest and highest costs.
⊚ true
⊚ false

Answer 8

False

Question 9

9) The highest and lowest costs are always used to analyze a mixed cost under the high-low method.
⊚ true
⊚ false

Answer 9

False

Question 10

10) The high and low points used in the high-low method tend to be unusual and therefore the cost formula for the mixed cost may not accurately represent all of the data.
⊚ true
⊚ false

Answer 10

True

Question 11

11) Managers can use a variety of methods to estimate the fixed and variable components of a mixed cost. In account analysis, an account is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves.
⊚ true
⊚ false

Answer 11

True

Question 12

12) Variable manufacturing overhead costs are treated as product costs under both absorption and variable costing.
⊚ true
⊚ false

Answer 12

True

Question 13

13) Under variable costing, fixed manufacturing overhead is treated as a product cost.
⊚ true
⊚ false

Answer 13

False

Question 14

14) Under variable costing, an increase in fixed manufacturing overhead will affect the unit product cost.
⊚ true
⊚ false

Answer 14

False

Question 15

15) Absorption costing treats all fixed costs as product costs.
⊚ true
⊚ false

Answer 15

False

Question 16

16) Under the absorption costing method, a company can increase profits simply by increasing the number of units produced.
⊚ true
⊚ false

Answer 16

True

Question 17

17) Under absorption costing, a portion of fixed manufacturing overhead cost is released from inventory when production volume exceeds sales volume.
⊚ true
⊚ false

Answer 17

False

Question 18

18) When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs deferred in inventory under absorption costing should be deducted from variable costing net operating income to arrive at the absorption costing net operating income.
⊚ true
⊚ false

Answer 18

False

Question 19

19) Assuming the LIFO inventory flow assumption, when production exceeds sales for the period, absorption costing net operating income will exceed variable costing net operating income.

True
False

Answer 19

True

Question 20

20) Segment margin is sales less variable expenses less traceable fixed expenses.
⊚ true
⊚ false

Answer 20

True

Question 21

21) The salary paid to a store manager is not a traceable fixed expense of the store.
⊚ true
⊚ false

Answer 21

False

Question 22

22) Allocating common fixed costs to segments on segmented income statements increases the usefulness of such statements.
⊚ true
⊚ false

Answer 22

False

Question 23

23) Segmented statements for internal use should not be prepared using the contribution format.
⊚ true
⊚ false

Answer 23

False

Question 24

24) Common fixed expenses should not be allocated to business segments when performing break-even calculations and making decisions.
⊚ true
⊚ false

Answer 24

True

Question 25

25) Budgets are used for the distinct purposes of planning and profit.
⊚ true
⊚ false

Answer 25

False

Question 26

26) Control involves developing goals and preparing various budgets to achieve those goals.
⊚ true
⊚ false

Answer 26

False

Question 27

27) The cash budget is the starting point in preparing the master budget.
⊚ true
⊚ false

Answer 27

False

Question 28

28) The production budget is typically prepared prior to the sales budget.
⊚ true
⊚ false

Answer 28

False

Question 29

29) The selling and administrative budget is typically prepared before the cash budget.
⊚ true
⊚ false

Answer 29

True

Question 30

30) One of the weaknesses of budgets is that they are of little value in uncovering potential bottlenecks.
⊚ true
⊚ false

Answer 30

False

Question 31

31) Cash collections in a schedule of cash collections typically consist of collections on sales made to customers in prior periods plus collections on sales made in the current budget period.
⊚ true
⊚ false

Answer 31

True

Question 32

32) In a production budget, if the number of units in finished goods inventory at the end of the period is less than the number of units in finished goods inventory at the beginning of the period, then the expected number of units sold is less than the number of units to be produced during the period.
⊚ true
⊚ false

Answer 32

False

Question 33

33) When preparing a direct materials budget, beginning inventory for raw materials should be added to production needs, and desired ending inventory should be subtracted to determine the amount of raw materials to be purchased.
⊚ true
⊚ false

Answer 33

False

Question 34

34) The direct labor budget shows the direct labor-hours required to satisfy the production budget.
⊚ true
⊚ false

Answer 34

True

Question 35

35) The manufacturing overhead budget lists all costs of production other than direct materials and direct labor.
⊚ true
⊚ false

Answer 35

True

Question 36

36) The budgeted variable selling and administrative expense is calculated by multiplying the budgeted unit sales by the variable selling and administrative expense per unit.
⊚ true
⊚ false

Answer 36

True