Institute of Business Administration Name:

Subject: Accounting for Decision Making Enrollment No.

Quiz No. 2
Total Marks: 10 All MCQs to be attempted.

1. Bakan Corporation has provided the following production and average cost data fortwo levels of monthly
production volume. The company produces a single product.

Production volume 3,000 units 4,000 units

Direct materials $86.30 per unit $86.30 per unit
Direct labor $26.40 per unit $26.40 per unit
Manufacturing overhead $75.90 per unit $60.40 per unit

The best estimate of the total variable manufacturing cost per unit is:
A) $126.60
B) $86.30
C) $13.90
D) $112.70

2. At a sales level of $365,000, Lewis Company's gross margin is $20,000 less than itscontribution margin, its
net operating income is $70,000, and its selling andadministrative expenses total $130,000 At this sales
level, its contribution marginwould be:

A) $295,000
B) $180,000
C) $220,000
D) $200,000

3. Assuming that the unit contribution margin is positive, a 10% decrease in selling pricewill increase the
break-even point in terms of unit sales more than will a 10% increasein the variable expense.

A) True B) False

4. Operating leverage will decrease as the company's margin of safety increases.

A) True B) False

5. The contribution margin ratio always increases when the:

A) break-even point increases.

B) break-even point decreases.
C) variable expenses as a percentage of net sales decrease.
D) variable expenses as a percentage of net sales increase.

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6. A $2.00 increase in a product's variable expense per unit accompanied by a $2.00increase in its selling
price per unit will:

A) decrease the degree of operating leverage.

B) decrease the contribution margin.
C) have no effect on the break-even volume.
D) have no effect on the contribution margin ratio.

7. The following information relates to the break-even point at Pezzo Corporation:

Sales dollars ...................... $120,000

Total fixed expenses ........... $30,000

If Pezzo wants to generate net operating income of $12,000, what will its sales dollarshave to be?

A) $132,000
B) $136,000
C) $168,000
D) $176,000

CM = 30000 (at breakeven Fixed Cost =CM)

S = 0.75S +30000 +12000

S = 42000/0.25 = 168000

OR

Fixed Cost + NI/ CM ratio

30000+12000/ 0.25

8. The following information relates to Snowbird Corporation:

Sales at the break-even point………… $312,500

Total fixed expenses ........................$250,000
Net operating income .....................$150,000

What is Snowbird's margin of safety?

A) $62,500
B) $187,500
C) $100,000
D) $212,500

9. The following information relates to Zinc Corporation for last year:

Sales ........................................................... $500,000

Net operating income ................................ $25,000
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 Degree of operating leverage .................... 5

Sales at Zinc are expected to be $600,000 next year. Assuming no change in coststructure, this means
thatnet operating income for next year should be:

A) $30,000
B) $45,000
C) $50,000
D) $125,000

10. Tice Company is a medium-sized manufacturer of lamps. During the year a new linecalled “Horolin” was
made available to Tice's customers. The break-even point forsales of Horolin is $200,000 with a
contribution margin of 40%. Assuming that theprofit for the Horolin line during the year amounted to
$100,000, total sales during theyear would have amounted to:

A) $300,000
B) $420,000
C) $450,000
D) $475,000

11. Birney Company has prepared the following budget data:

Sales .............................................................. 150,000 units

Selling price .................................................. $25 per unit
Variable expenses ......................................... $15 per unit
Fixed manufacturing expenses ..................... $800,000
Fixed selling and admin. expenses ............... $700,000

An advertising agency claims that an aggressive advertising campaign would enablethe company to
increase its unit sales by 20%. What is the maximum amount that thecompany can pay for advertising
and obtain a net operating income of $200,000?

A) $100,000
B) $200,000
C) $300,000
D) $550,000

12. Last year, variable expenses were 60% of total sales and fixed expenses were 10% oftotal sales. If the
company increases its selling prices by 10%, but if fixed expenses,variable costs per unit, and unit sales
remain unchanged, the effect of the increase inselling price on the company's total contribution margin
would be:

A) a decrease of 2%
B) an increase of 5%
C) an increase of 10%
D) an increase of 25%
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13. Under variable costing, it is possible to defer a portion of the fixed manufacturingoverhead costs of the
current period to future periods through the inventory account.

A) True B) False

14. When viewed over the long term, accumulated net operating income will be the samefor variable and
absorption costing if there are no ending inventories at the end of theterm.

A) True B) False

15. Inan incomestatement prepared as an internal report using variable costing, variableselling
andadministrative expenses would:

A) not be used.
B) be used in the computation of the contribution margin.
C) be used in the computation of net operating income but not in the computation ofthe contribution
margin.
D) be treated the same as fixed selling and administrative expenses.

16. When sales exceed production, the net operating income reported under variablecosting generally will
be:

A) less than net operating income reported under absorption costing.

B) greater than net operating income reported under absorption costing.
C) equal to net operating income reported under absorption costing.
D) higher or lower because no generalization can be made.

17. Which of the following budgets are prepared before the production budget?

Direct Materials Budget Sales Budget

A) Yes Yes
B) Yes No
C) No Yes
D) No No

18. Thirty percent of Sharp Company's sales are for cash and 70% are on account. Sixtypercent of the
account sales are collected in the month of sale, 25% in the monthfollowing sale, and 12% in the second
month following sale. The remainder isuncollectible. The following are budgeted sales data for the
company:

January February March April

Total sales $50,000 $60,000 $40,000 $30,000

Total cash receipts in April are expected to be:

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 A) $24,640
B) $35,200
C) $31,560
D) $33,640

19. Poor quality materials could have an unfavorable effect on which of the followingvariances?

Labor Efficiency Materials Quantity

Variance Variance
A) Yes Yes
B) Yes No
C) No Yes
D) No No

20. When a multi-product factory operates at full capacity, decisions must be made about what products to
emphasize. In making such decisions, products should be ranked based on:

A) selling price per unit

B) contribution margin per unit
C) contribution margin per unit of the constraining resource
D) unit sales volume

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