TEST 1 TRUE OR FALSE
Sales volume plays a largest role in
1. The degree of operating leverage provides a
measure of a company’s earnings volatility
2. The breakeven point in dollars is variable
cost divided by the weighted average
contribution margin ratio
3. When absorption costing is used for external
reporting, variable costing can still be used for
internal reporting purposes
4. When absorption costing is used,
management may be tempted to over produce
in a given period in order to increase net
income.
5. Fixed manufacturing overhead is a period
cost under absorption costing
6. Selling and administrative costs are period
cost under both absorption and variable costing.
7. A variable cost remains constant per unit,
though in total increases as activity level
increase.
8. Contribution margin equals the total
variable costs plus total fixed costs at the
break even point
9. An opportunity cost is the potential benefit
given up by using resources in an alternative
course of action
10. In most cases, a company sets the price
instead of it being set by the competitive
market
11. In a competitive market, a company is
forced to act as a price taker and must
emphasize minimizing and controlling costs
12. The difference between the target price and
the desired profit is the target cost of the
product
13. In a competitive environment, the
company must set a target cost and a target
selling price
14. The cost-plus pricing approach establishes a
cost base and adds a markup to this base to
determine a target selling price.
15. The cost plus pricing model gives
consideration to the demand side whether
customer will pay the target selling price
16.
determining per unit costs in the cost
plus pricing approach
17. Incremental analysis identifies the probable
effects of management decision on future
earnings
18. Decisions made using incremental analysis
focus on the amounts which differ among the
alternatives
19. Max Company has excess capacity. A
customer proposes to buy 400 widgets at a
special unit price even though the price is less
than the unit variable cost to manufacture the
item. Max should accept the special order if
demand on other products is unaffected
20. A company should accept an order of its
product at less than its regular sales price if the
incremental revenue exceed the incremental
costs
21. An opportunity cost is the benefit given up
by using alternative course of action
22. An incremental make or buy decision
depends solely on which alternative is the
lowest cost alternative.
23. In a sell or process further decision,
management should process further as long as
the incremental revenues from additional are
greater than the incremental costs
24. It is better to process further rather than
sell now if the sales prices increases.
25. The elimination of unprofitable product
line will always increase the total profits of a
company
 PART 2 A. Fixed cost per unit
26-27 Factors that can affect pricing decisions B. Total cost per unit
include all of the following except: C. Total manufacturing cost per unit
A. Cost consideration D. Variable cost per unit
B. Environment
C. Pricing objectives 40-41 The cost plus pricing approach’s major
D. All of those factors advantage
A. It considers customer demand
28-29 In most cases prices are set by the B. That sales volume has no effect to per unit
A. Customers costs
B. Competitive market C. It is simple to compute
C. Largest competitor D. It can be used to determine a targets product
D. Selling company cost

30-31 A company must price its product to cover 42-43 The following per unit information is
its cost and earn a reasonable profit available for a new product of Blue Ribbon
C. IN LONG RUN Company

32-33 Prices are set by the competitive market Desired ROI $48
when Fixed cost 80
A. The product is specially made for a customer Variable cost 120
B. There are no other producing capable of Total cost 200
manufacturing a similar term Selling price 248
C. A company can effectively differentiate its
product from others Blue Ribbon company markup percentage
D. A product is not easily distinguished from would be
competing products A. 19%
B. 24%
34-35 All of the following are correct C. 40%
statements about the target price except: D. 60%
A. Is the price the company believes would
place it in the optimal position audience 44-45 Bryson company has just developed a
B. is used to determine a product’s target cost. new product. The following data for this
C. is determined after the company has product:
identified its market and does market research.
D. is determined after the company sets its Desired ROI per unit $36
desired profit amount. Fixed cost per unit 60
Desired ROI per unit 90
36-37 In cost-plus pricing, the target selling total cost per unit 150
price is computed as
A. Variable cost per unit + desired ROI per unit The target selling price for this product is
B. Fixed cost per unit + desired ROI per unit A. 186
C. Total unit cost + Desired ROI per unit B. 150
D. Variable cost per unit + fixed manufacturing C. 126
cost per unit + Desired ROI per unit D. 96

38-39 In cost plus pricing, the markup

percentage is computed by dividing the per unit
by the
 B. $58
46-47 All of the following are correct C. $35
statements about the cost plus approach that it D. $13
A. Is simple to compute
B. Considers customer demand 53-54 ABC bread sells a box of bagets for with a
C. Includes only variable cost in the cost base contribution margin of 62.5%. Its fixed costs are
D. Will only work when the company sells the $150,000 per year. How much sales dollars does
quantity it budgeted ABC Bread need to break even per year if bagets
are it only product?
48-49 In the cost-plus pricing approach, the A. 93,750
desired ROI per unit is computed by multiplying B. 150,000
the ROI percentage by C. 240,000
A. Fixed costs D. 90,000
B. Total assets
C. Total costs 55-56 Company A and company B sell their
D. Variable costs product for exactly the same sales price. Both
have the same annual fixed costs. Company A
50-51 Red grass company produces high variable and fixed cost at break even total
definition television sets. The following 60,000 and 30,000 respectively. Company B
information is available for the product: variable and fixed cost at break even total
30,000 and 60,000 respectively. Both companies
Fixed cost per unit 100 have the same net income, If both companies
Variable cost per unit 300 experience an increase in sales, which company
Total cost per unit 400 will have the higher net income?
Desired ROI per unit 120 A. Company A
B. Company B
Red Grass company markup percentage would C. Both Companies will report the same profits
be since total costs are the same.
A. 120% D. More information is needed to determine the
B. 60% answer
C. 40%
D. 30% 57-58 Fallow-Hawke is a nonprofit organization
that captures stray deer bewildered within
51-52 In september, smith company had the residential communities. Fixed costs are
following financial statement amounts related $10,000. The variable cost of capturing each
to producing 1,000 units: deer is $10 each. Fallow-Hawke is funded by a
local philanthropy in the amount of $32,000 for
Direct Materials 30,000 2004. How many deer can they capture during
Depreciation Expense 12,000 2004?
Sales Revenue 88,000 A. 2,200
Direct labor 10,000 B. 3,200
Rent Expense 13,000 C. 4,200
D. 2,000
How much is the condition margin per unit?
A. $48 59-60 Serene Dairy has four product lines:
sour cream, ice cream, yogurt, and butter. The
 total cost of producing the milk base for the
products is $45,000, which has been allocated
based on the gallons of milk base used by
each product. Results for July follow: Sour
Cream Ice Cream Yogurt Butter Total Units
sold 2.000 500 400 2.000 5.900 Revenue
$10.000 $20,000 $10,000 $20,000 $60,000
Variable departmental costs 6,000 13,000
4,200 4,800 28.000 Fixed costs 5.000 2.000
3.000 7.000 17.000 Net Income (loss) (1.000)
$5.000 $ 2.800 8.200 $15.000 How much are
total joint costs of the products?
A $28,000
B. $15,000
C. $17,000
D. $45,000
61-62 Halliburton Division has the following
data:
B. 240,000 Decrease
63-64 C. 31.00 per batch
65-66 C. Face cream must not be further
67-68 Namov Company has old inventory on
hand that cost $12,000. Its scrap value is
$16,000. The inventory could be sold for
$38,000 if manufactured further at an
additional cost of $12,000. What should Narst
do?
A. Sell the inventory for $16,000 scrap value.
B. Dispose of the inventory to avoid any
further decline in value.
C. Hold the inventory at its $12,000 cost
D. Manufacture further and sell it for
$38,000.
69-70 Seran Company has contacted Truckel Inc.
with an offer to sell it 5,000 of the wickets for
$18 each. If Truckel makes the wickets, variable
costs are $11 per unit. Fixed costs are $12 per
unit; however, $5 per unit is avoidable. Should
Truckel make or buy the wickets?
A. Buy; savings = $25,000
B. Make; savings = $20,000
C. Buy; savings = $10,000
D. Make; savings = $10,000
71-72 Walton, Inc. is unsure of whether to
sell its product assembled or
unassembled. The unit cost of the
unassembled product is $16, while the
cost of assembling each unit is estimated
at $17. Unassembled units can be sold for
$55, while assembled units could be sold
for $71 per unit. What decision should
Walton make?
A. Sell before assembly, the company
will save 1 per unit
B. Sell before assembly, the company will
save 15 per unit
C. Process further, the company will save
1 per unit
D. Process further, the company will save
16 per unit
73-74 Ace Company sells office chairs with a
selling price of $25 and a contribution margin
per unit of $15. It takes 3 machine hours to
produce one chair. How much is the
contribution margin per unit of limited resource?
a. $5
b. $3.33
c. $45
d. $10
75-76 Which of the following is a major
accounting contribution to the managerial
decision- making process in evaluating
possible courses of action?
A. Determining who is responsible for the
decision
B. Prepare Internal reports that review the
actual impact of a decision made
C. Calculate how much should be invested for
each potential object
D. Select possible actions that management
should consider
77-78 Which of the following is a true statement
about incremental analysis
A. It is another name for capital budgeting
B. It is the same as CVP Analysis
C. It is used primarily for long term planning
D. It focuses on decisions that involves a choice
among alternative courses of action
79-80 For which of the following decisions is
incremental analysis not appropriate?
A. elimination of an unprofitable segment;
B. Determining cost behavior
C. a make or buy decision;
D. an allocation of limited resource decision
81-82 For which of the following decisions is 91-92 Saver Company produces only one
incremental analysis appropriate? product. Monthly fixed expenses are $12,000,
A. Acceptance of a special order and a make or monthly unit sales are 2,000, and the unit
buy decision contribution margin is $10. How much is
B. A retain or replace equipment decision and monthly net profit?
CVP analysis.
(a) $20,000
C. A sell or process further decision and (b) $32,000
allocation of indirect costs. (c) $0
(d) $8,000
D. Elimination of an unprofitable segment and
allocation of indirect costs.
93-94 Sutton Company produces flash
drives for computers, which it sells for $20
83-84 Which of the following is a true statement
each. Each flash drive costs $6 of variable
about cost behaviors in incremental analysis? costs to make. During April, 700 drives were
A. Total variable cost do not change between sold. Fixed costs
alternatives B. 2,000
B. Fixed costs and variable costs will always
change between alternatives 95-96 Sutton Company produces flash
C. Variable cost per unit will always change drives for computers, which it sells for $20
between alternatives
each. Each flash drive costs $6 of variable
costs to make. During April, 700 drives were
D. Fixed costs will generally not change
sold. Fixed costs for April were $4 per unit
between alternatives. for a total of $2,800 for the month. How
much does Sutton's operating income
85-86 Which statement is true about relevant increase for each $1,000 increase in
costs in incremental analysis revenue per month?
A. All costs are relevant if they change a. $700.
between alternatives.
b. $500.
87-88 Sorrento Company's plant is operating c. $14,000.
at less than full capacity. The company just
d. Not enough information to determine
received a one-time opportunity to accept an the answer.
order at a special price below its usual price.
The special price exceeds its variable costs.
Which statement is true? 97-98 A division sold 200,000 calculators
A. fixed costs are relevant during 2006:
B. the order will likely be accepted Sales $2,000,000
C. the order will likely be rejected
D. sorrento should expand its plant capacity Variable costs:
before accepting the order Materials $200,000
Order processing150,000
89-90 In which situations should
opportunity costs be considered? Billing labor 110,000
A. decision making that involves alternative Delivery costs 180,000
uses
Selling Expenses 60,000
Total Variable Costs 700,000
Fixed Cost 1,000,000 total fixed costs of 60,000. How many units
must the company sell to break even?
How much is the contribution margin per A. 180,000
unit? B. 20,000
C. 6,667
A. 1.00
D. 10,000
B. 3.50
C. 8.50
109-110 Which of the following is an element of
D. 6.50
manufacturing overhead?
A. Factory workers wages
99-100 Which of the following is true B. Components used in calculators during
concerning a cvp income statement? production
C. Plant managers salary
A. Costs and expenses are classified only by D. Flour Used in manufactured cake mixes
function.
B. It is prepared for both internal and 111-112 Which of the following represents a
external use. correct order in which inventories are reported
C. It shows contribution margin instead of on a manufacturers balance sheet?
gross profit. A. Raw Material, Work in process, Finished
D. Costs and expenses are classified as goods
product or period.
113-114 Both direct material and indirect
101-102 A company requires $600,000 in sales material are
to meet its target net income. Its A. Period costs
contribution margin is 40%, and fixed costs are B. Merchandise inventory
$80,000. How much is the target net income? C. Raw materials
D. Manufacturing overhead
A. 360,000
B. 280,000 115-116 which one of the accounts would the
C. 208,000 work of factory employees that can be
D. 160,000 physically and directly associated with
converting raw materials into finished goods be
103-104 Sulingo Inc. Calcuted how many units it categorized?
needed in order earn net profit totaling 50,000 A. Direct labor
for the month. What calculation did Sulingo B. Indirect labor
perform? C. Manufacturing Overhead
a. [Variable costs + 50,000)] ÷ contribution D. Indirect Materials
margin ratio
b. [Fixed costs + 50,00)] ÷ contribution margin 117-118 Which of the following is a product cost?
ratio A. Indirect labor
c. [Fixed costs + 50,000] ÷ contribution margin B. Office Salaries
per unit C. Sales person salaries
d. [Variable costs + 50,000] ÷ contribution D.
margin per unit
119-120 In what category are lubricants that are
105-106 Hevner Company calculated how much used for wheel bearings on skateboards
its sales could drop before it incurred a loss. produced by a manufacturer categorized?
What did hevner calculate?
A. Contribution Margin A. Selling expense
B. Margin of safety B. Indirect materials
C. Relevant Range C. Miscellaneous expense
D. Target net income D. Direct Materials

107-108 A company sells a product which has

unit sales of $9, unit variable cost of $6 and