7th QUIZ
STRATEGIC COST ACCOUNTING
CHAPTER 1 CVP ANALYSIS
CHAPTER 2 PRICING AND PROFITABILITY ANALYSIS
Question 1
1 / 1 pts
The margin of safety is the amount:
that the contribution margin exceeds fixed cost.
by which the sales price per unit exceeds the variable cost per unit.
that sales can decrease before the company will suffer a loss.
by which the profit calculated under absorption costing exceeds the profit calculated under variable
costing.
Question 2
1 / 1 pts
The term relevant range, as used in cost accounting, means the range
of probable production
over which cost relationships are valid
over which production has occurred in the past ten years.
over which costs may fluctuate
Question 3
1 / 1 pts
Which of the following is involved in studying cost-volume-profit relationship?
all of the given choices
fixed costs
variable costs
product mix
Question 4
1 / 1 pts
The rate or amount that sales may decline before losses are incurred is called
residual income rates
operating leverage
Variable sales ratio
Margin of Safety
Question 5
1 / 1 pts
Each of the following would affect the break-even point except a change in the:
Number of units sold.
Sales price per unit.
Variable cost per unit.
Total fixed costs.
Question 6
1 / 1 pts
Following are the uses of CVP analysis, except:
Analyze cash flows
deciding on selling price for a product
estimating future profit
analyzing margin of safety in budget
Question 7
1 / 1 pts
Which of the following assumptions does not pertain to cost-volume-profit analysis?
sales mix may vary during the related period
the units produced will equal the units sold
total revenue function is linear
inventories are constant
Question 8
1 / 1 pts
The indicator that results in total revenues being equal to total cost is called the?
marginal cost
sales mix
marfinal volume
break-even point
Question 9
1 / 1 pts
CVP is a key factor in many decisions, including choice of product lines, pricing of products, marketing
stategy, and utilization of product facilities. A calculation used in CVP Analysis is the break-even point.
Once the break-even point has been reached, operating income will increase by the:
contribution margin per unit for each additional unit sold
Gross margin per unit for each additional unit sold.
sales price per unit for each additional unit sold
Fixed cost per unit for each additional unit sold
Question 10
1 / 1 pts
A technique that uses the degrees of cost variability to measure the effect of changes in volume on
resulting profits is:
Standard costing.
Cost-volume-profit analysis.
Segment profitability analysis.
Variance analysis.
Question 11
1 / 1 pts
The excess of revenue over variable costs, including manufacturing, selling and administrative costs, is
called:
Segment margin.
Gross margin.
Manufacturing margin.
Contribution margin.
Question 12
1 / 1 pts
Under variable costing, fixed manufacturing overhead is:
expensed immediately when incurred
applied directly to Finished-Goods inventory
treated in the same manner as variable manufacturing overhead
an inventoriable cost
Question 13
1 / 1 pts
What is the pricing method that focuses on eliminating non-value-added costs?
Skimming
Predatory pricing
Target costing
Cost-plus pricing
Question 14
1 / 1 pts
What costs are treated as product costs under direct costing?
Only variable manufacturing costs
All variable and fixed manufacturing costs
Only direct costs
All variable costs
Question 15
1 / 1 pts
Which of the following is true about absorption costing?
Income is higher if the production is greater than the sales.
Income is higher if the production is less than the sales.
The term used to designate the difference between sales and cost of goods sold is the
“manufacturing margin.”
No fixed factory overhead is charged to production.
Question 16
1 / 1 pts
What is the difference between perfect competition and monopolistic competition?
In perfect competition, firms produce identical goods, while in monopolistic competition, firms
produce slightly different goods.
Perfect competition has barriers to entry while monopolistic competition does not.
Perfect competition has a large number of small firms while monopolistic competition does not.
Perfect competition has no barriers to entry, while monopolistic competition does.
Question 17
1 / 1 pts
Net income reported under variable costing will exceed net income reported under absorption
costing for a given period if:
Sales exceed production for that period.
Production equals sales for that period.
The variable overhead exceeds the fixed overhead.
Production exceeds sales for that period.
Question 18
1 / 1 pts
If the selling price and the variable cost per unit both increase 10 percent and fixed costs do not
change, what is the effect on the contribution margin per unit?
Contribution margin per unit increases
Contribution margin per unit decreases
Contribution margin per unit is unchanged.
No effect at all.
Question 19
1 / 1 pts
The contribution margin format income statement is organized by
functional classifications
sales territories
cost behavior classifications
responsibility centers
Question 20
1 / 1 pts
What factor related to manufacturing costs causes the difference in net earnings computed using
absorption costing and net earnings computed using variable costing?
Absorption costing considers all costs in the determination of net earnings, whereas variable costing
considers only direct costs.
Absorption costing "inventories" all fixed manufacturing costs for the period in ending finished goods
inventory, but variable costing expenses all fixed costs.
Absorption costing "inventories" all direct costs, but variable costing considers direct costs to be
period costs.
Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories,
and variable costing considers all fixed costs to be period costs.
SHORT PROBLEMS
Question 21
2 / 2 pts
Bialy Company had the following information:
Total Sales $120,000
Total variable costs 48,000
Operating income 12,000
What is the break-even sales revenue?
$72,000
$108,000
$60,000
$100,000
Solution:
Total Sales $120,000
Total variable costs 48,000
Contribution margin 72,000
Operating income 12,000
Fixed cost 60,000
Breakeven sales= 60,000/ [72,000/120,000] = 100,000
Consider the following information for the Dehning Company:
Sales price per unit $ 130
Variable cost per unit 80
Total fixed costs 840,000
What are Dehning's variable costs at the break-even point?
$490,000
$840,000
$588,000
$1,344,000
Solution:
Breakeven units= 840,000/[130-80]=16,800
Variable cost= 16,800 [breakeven units] x $80[variable cost] = $1,344,000
The Blue Saints Band is holding a concert in Toronto. Fixed costs relating to staging a concert are
$350,000. Variable costs per patron are $10.00. The selling price for a tickets $30.00. The Blue Saints
Band has sold 23,000 tickets so far.
How many tickets does the Blue Saints Band need to sell to break even?
14,000
20,000
17,500
23,000
Solution
Breakeven units= $350,000 / [ $30.00 - $30.00] = 17,500
A company has fixed costs of $700,000. The selling price and variable cost per unit are $50.00, and
$10.00, respectively.
How many units does the company need to sell to achieve net income of $100,000 after income tax,
assuming the income tax rate is 50%?
17,500
2,500
25,000
22,500
Solution
Before Tax= $100,000 after income tax / [ 1- 50% tax rate ] = 200,000
Units of Target Income = [ $700,000 fixed costs + 200,000 Before Tax ] / [$50 - $10] = 22,500
Franklin Company is a medium-sized manufacturer of bicycles. During the year a new line called
"Radical" was made available to Franklin's customers. The break-even point for sales of Radical is
$200,000 with a contribution margin ratio of 40 percent. Assuming that the profit for the Radical line
during the year amounted to $80,000, total sales during the year would have amounted to:
$400,000.
$420,000
$450,000.
$475,000.
Solution:
Breakeven sales= Fixed / CM ratio
$200,000 = fixed / 40%
Fixed =$200,000 x 40%
Fixed = 80,000
Profit $80,000
Fixed $80,000
CM 160,000
SALES= 160,000 TOTAL CM / 40% CM ratio = $400,000.
Queen, Ltd. has one product. Its sales price and variable cost per unit are $25 and $20, respectively.
Last year, Queen sold 25,000 units, which was 5,000 more than the break-even point. What were
Queen’s fixed expenses?
$125,000
There is not enough information to answer the question.
$100,000
$300,000
SOLUTION
BREAKEVEN UNITS= 25,000 -5,000= 20,000
Breakeven UNITS = Fixed / CM UNITS
20,000= FIXED / [ $25 -$20]
FIXED = 20,000 X 5 = $100,000
Consider the income statement for Pickbury Farm:
Sales $500,000
Variable costs 350,000
Contribution margin 150,000
Fixed costs 80,000
Net income $ 70,000
What is the margin of safety ratio (to the nearest percentage point)?
70%
88%
47%
30%
SOLUTION
MARGIN OF SAFETY RATIO = SALES - BREAKEVEN SALES / SALES
= [ $500,000 -* 266,667 ] / $500,000= 47%
* BREAKEVEN SALES= FIXED / CM RATIO
= 80,000 / [150,000/ $500,000]
= 80,000/ 30%
=266,667
Ayo Corporation has sales of $200,000, a contribution margin of 20%, and a margin of safety of
$80,000. What is Ayo's fixed cost?
$96,000
$24,000
$80,000
$16,000
SOLUTION: MARGIN OF SAFETYDOLLAR= SALES- [FIXED/ CM RATIO]
$80,000= $200,000- [FIXED/ 20%]
-$200,000+ $80,000 = - FIXED/ 20%
-120,000 = - FIXED/ 20%
FIXED= 120,000 X 20%
FIXED= $24,000
Kehler Corporation wished to market a new product for $2.00 a unit. Fixed costs to manufacture this
product are $100,000. The contribution margin is 40 percent. How many units must be sold to realize
net income of $140,000 from this product?
450,000
250,000
600,000
300,000
SOLUTION=
UNITS OF TARGET PROFIT= FIXED +TARGET PROFIT / CM UNIT
= $100,000 + $140,000 / [ $2.00 PRICE X 40% CM ]
= $240,000 / 80%
= 300,000
The following production data come from the records of Olympic Enterprises for the year ended
December 31, 2019.
Direct materials $ 480,000
Direct labor 260,000
Variable factory overhead 44,000
Fixed factory overhead 36,800
During the year, 40,000 units were manufactured but only 35,000 units were sold. How much is the
inventoriable cost of the 35,000 units sold using variable costing.
$102,500
$98,000
$686,000
$717,500
SOLUTION
UNIT COST VARIABLE COSTING = $ 480,000 + 260,000 + 44,000 / 40,000 units manufactured
= $19.6
inventoriable cosT= 35,000 units sold X $19.6 = $686,000
Banwood Company has the following for 2019:
Selling price $150 per unit
Variable production costs $40 per unit produced
Variable selling and admin expenses $16 per unit sold
Fixed production costs $200,000
Fixed selling and admin expenses $140,000
Units produced 10,000 units
Units sold 8,000 units
What is the mark up based on cost of goods sold?
50%
150%
100%
250%
SOLUTION:
COGS PER UNIT COST = $40 VARIABLE COST +[ $200,000FIXED COST / 10,000 units Units produced
=$40 VARIABLE COST + $20 FIXED COST
= $60
SALES [ $150 per unit X8,000 units Units sold] 1,200,000
COGS [ $60 per unit X8,000 units Units sold] 480,000
GROSS PROFIT 720,000
MARKUP ON COST OF GOODS SOLD= GROSS PROFIT/ COGS
= 720,000 /480,000
= 150%
The following production data come from the records of Olympic Enterprises for the year ended
December 31, 2019.
Direct materials $ 480,000
Direct labor 260,000
Variable factory overhead 44,000
Fixed factory overhead 36,800
Fixed selling expense 35,000
During the year, 40,000 units were manufactured but only 35,000 units were sold for $25 each. How
much is the gross profit?
$156,800
$189,000
$117,200
$121,800
SOLUTION
ABSORPTION COSTING
COGS PER UNIT COST= 480,000 Direct materials + 260,000Direct labor + 44,000 Variable factory
overhead + 36,800Fixed factory overhead / 40,000 units manufactured
= 820,800/ 40,000
= 20.52
Sales [ 35,000 units sold X $25] 875,000
COGS [ 35,000 units sold X $20.52] 718,200
Gross profit $156,800
Mobile, Inc., manufactured 700 units of Product A, a new product, during the year. Product A's
variable and fixed manufacturing costs per unit were $6.00 and $2.00, respectively. The inventory of
Product A on December 31 of the year consisted of 100 units. There was no inventory of Product A
on January 1 of the year. What would be the change in the dollar amount of inventory on December
31 if variable costing were used instead of absorption costing?
$600 decrease
$200 decrease
$200 increase
$800 decrease
SOLUTION
ABSORPTION COSTING UNIT COST = 100 units X [ $6.00variable + $2.00 fixed ] 800
VARIABLE COSTING UNIT COST = 100 units X $6.00variable 600
$200 decrease
Using the following data as follows:
Direct materials $ 90,000
Direct labor 120,000
Variable factory overhead 60,000
Fixed factory overhead 150,000
Fixed marketing and administrative expense180,000
The factory produced 80,000 units during the period and 70,000 units were sold for $700,000. How
much is the contribution margin?
$430,000
$463,750
$332,500
$380,000
SOLUTION
COST PER UNIT= 90,000Direct materials + 120,000Direct labor +
60,000Variable factory overhead / 80,000 units PRODUCED
=$ 3.375
SALES $700,000
COGS [ $3.375 X 70,000 units sold] 236,250
CONTRIBUTION MARGIN $463,750
A company had income of $50,000 using variable costing for a given period. Beginning and ending
inventories for the period were 18,000 units and 13,000 units, respectively. If the fixed overhead
application rate was $2 per unit, what was the net income, using absorption costing?
$55,000
$40,000
$45,000
$60,000
SOLUTION
BEGINNING 18,000 units X $2 fixed overhead 36,000
ENDING 13,000 units X $2 fixed overhead 26,000
DECREASED BY 10,000 ABSORPTION
$50,000 INCOME - 10,000 = $40,000
