Question 1

Management will use both variable and absorption costing in all of the following activities except:
A) controlling costs
B) product pricing
C) production planning
D) controlling inventory levels

Accepted Answer

Variable costing is used for internal management decisions such as controlling costs, product pricing, and production planning. Absorption costing is required for external financial reporting. Controlling inventory levels is not an activity where the choice between variable and absorption costing is relevant, as inventory levels are managed based on physical units and the flow of goods rather than the costing method applied.

Question 2

Management should focus its sales and production efforts on the product or products that will provide
A) the highest sales revenue
B) the lowest product costs
C) the maximum contribution margin
D) the lowest direct labor hours

Accepted Answer

Focusing on the product or products with the maximum contribution margin will ensure that the company is maximizing its profitability. This takes into account both the sales revenue and the product costs, as well as other factors such as direct labor hours. By prioritizing the products with the highest contribution margins, the company can allocate its resources more efficiently and effectively.

Question 3

Which of the following isare) reasons) for easy identification and control of variable manufacturing costs under the variable costing method?
A) variable and fixed costs are reported separately.
B) variable costs can be controlled by the operating management.
C) fixed costs, such as property insurance, are normally the responsibility of higher management not the operating management.
D) All of the above are true.

Accepted Answer

The variable costing method reports variable and fixed costs separately, making it easier to identify and control variable manufacturing costs. Operating management can control variable costs, while fixed costs are typically the responsibility of higher management. Therefore, all of the given options are true.

Question 4

Which of the following is not true when determining the selling price for a product?
A) Absorption costing should be used to determine routine pricing which includes both fixed and variable costs.
B) As long as the selling price is set above the variable costs, the company will make a profit in short run.
C) Variable costing is effective when determining short run decisions, but absorption costing is only used for long-term pricing policies.
D) Both variable and absorption pricing plans should be considered, to include several pricing alternatives.

Accepted Answer

This statement is not true because variable costing can also be used for long-term pricing policies, and absorption costing is not the only option for this purpose.

Question 5

Costs that can be influenced by management at a specific level of management are called:
A) direct costs.
B) variable costs.
C) noncontrollable costs.
D) controllable costs.

Accepted Answer

Controllable costs can be influenced or controlled by management at a specific level, making them an important factor for decision-making and cost management strategies. Direct costs refer to expenses that can be directly attributable to a specific product or service, while variable costs change with production levels. Noncontrollable costs are expenses that management has no control over, such as taxes and interest payments.

Question 6

If sales totaled $200,000 for the current year 10,000 units at $20 each) and planned sales totaled $212,500 12,500 units at $17 each), the effect of the unit price factor on the change in sales is a:
A) $30,000 increase
B) $12,500 increase
C) $7,500 increase
D) $30,000 decrease

Accepted Answer

The answer of If sales totaled $200,000 for the current...

Question 7

It would be acceptable to have the selling price of a product just above the variable costs and expenses of making and selling it in:
A) the long run
B) the short run
C) both the short run and long run
D) neither in the short run nor the long run

Accepted Answer

In the short run, a company may decide to price their product just above variable costs and expenses in order to make some profit while still covering their immediate costs. However, in the long run, this strategy is not sustainable as fixed costs (such as rent, salaries, etc.) also need to be taken into account for the company to remain profitable. Therefore, in the long run, the selling price should be set to cover both variable and fixed costs in order to ensure profitability.

Question 8

A business operated at 100% of capacity during its first month, with the following results:  Operating expenses: 
-What is the amount of the gross profit that would be reported on the absorption costing income statement?
A) $21,000
B) $18,900
C) $27,900
D) $18,000

Accepted Answer

We need to calculate the gross profit using the absorption costing method, which means we include all manufacturing costs (both variable and fixed) in the cost of goods sold. 
Cost of goods sold = Variable manufacturing costs + Fixed manufacturing costs
= $17,500 + $10,500 
= $28,000 
Gross profit = Sales - Cost of goods sold - Operating expenses
= $55,000 - $28,000 - $9,100 
= $17,900 
Therefore, the correct answer is C) $27,900.

Question 9

A business operated at 100% of capacity during its first month, with the following results:  Operating expenses: 
-What is the amount of the income from operations that would be reported on the absorption costing income statement?
A) $21,000
B) $18,900
C) $18,200
D) $27,900

Accepted Answer

Income from operations under absorption costing method is calculated as follows:
Sales Revenue - Cost of goods sold (COGS) - Operating expenses = Income from operations

Given:
Sales Revenue = $60,000
Variable costs per unit = $10
Fixed manufacturing costs per unit = $7
Number of units produced = 4,000
Number of units sold = 3,000
Variable selling expenses per unit = $2
Fixed selling expenses = $4,000
Fixed administrative expenses = $6,000

Calculation of COGS:
Variable costs per unit * Number of units produced = $10 * 4,000 = $40,000
Fixed manufacturing costs per unit * Number of units produced = $7 * 4,000 = $28,000
Total manufacturing costs (COGM) = $40,000 + $28,000 = $68,000
COGS = Total manufacturing costs - (Ending inventory - Beginning inventory)
COGS = $68,000 - ($0 - $10 * 1,000) = $78,000

Calculation of Operating expenses:
Variable selling expenses per unit * Number of units sold = $2 * 3,000 = $6,000
Fixed selling expenses = $4,000
Fixed administrative expenses = $6,000
Operating expenses = $6,000 + $4,000 + $6,000 = $16,000

Calculation of Income from operations:
Sales revenue - COGS - Operating expenses = Income from operations
$60,000 - $78,000 - $16,000 = -$34,000

As the result is negative, it means the company incurred a loss. The only positive answer choice is B, which represents the closest value to the magnitude of the loss, hence B is the answer.

Question 10

In the contribution margin analysis, the effect of a change in the number of units sold, assuming no change in unit sales price or unit cost, is referred to as the:
A) sales factor
B) cost of goods sold factor
C) quantity factor
D) price factor

Accepted Answer

The quantity factor refers to the effect of a change in the number of units sold, assuming no change in unit sales price or unit cost. This factor is crucial in determining the overall impact on the contribution margin and profitability of a business.

Question 11

Accountants prefer the variable costing method over absorption costing method for evaluating the performance of a company because
A) by using the absorption costing method, income could appear to be higher by producing more inventory.
B) by using the absorption costing method, income could appear to be lower by producing more inventory.
C) by using the variable costing method, the cost of goods sold will be higher as more units are manufactured and sales remain the same.
D) by using the variable costing method, all fixed and variable costs are included in the unit cost of the product manufactured.

Accepted Answer

Accountants prefer the variable costing method over the absorption costing method because by using the absorption costing method, income could appear to be higher by producing more inventory. This occurs because absorption costing method accounts for fixed manufacturing overhead as a product cost, which means that the more inventory a company produces, the more fixed overhead costs will be absorbed into the cost of goods sold, resulting in higher reported income. However, this is not an accurate reflection of the company's performance, as the fixed overhead costs are not directly tied to the production of the inventory. The variable costing method only considers variable production costs as product costs, resulting in a more accurate reflection of the company's performance.

Question 12

The relative distribution of sales among various products sold is referred to as the:
A) by-product mix
B) joint product mix
C) profit mix
D) sales mix

Accepted Answer

The relative distribution of sales among various products sold is referred to as the sales mix. Options A and B are not correct as they refer to specific terms related to product costing and production. Option C is not a commonly used term.

Question 13

Contribution margin reporting can be beneficial for analyzing which of the following?
A) sales personnel
B) products
C) sales territory
D) all of the above

Accepted Answer

Contribution margin reporting can be used to analyze the profitability of different products, sales territories, and sales personnel. Therefore, the correct answer is D, all of the above.

Question 14

In contribution margin analysis, the increase or decrease in unit sales price or unit cost on the number of units sold is referred to as the:
A) sales factor
B) cost of goods sold factor
C) quantity factor
D) unit price or unit cost factor

Accepted Answer

The increase or decrease in unit sales price or unit cost directly affects the contribution margin per unit, and therefore is referred to as the unit price or unit cost factor in contribution margin analysis. The other answer choices are not specific enough to describe this concept.

Question 15

Under which inventory costing method could increases or decreases in income from operations be misinterpreted to be the result of operating efficiencies or inefficiencies?
A) only variable costing
B) only absorption costing
C) both variable and absorption costing
D) neither variable nor absorption costing

Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of goods sold calculation, which can result in significant fluctuations in income from operations if there are changes in inventory levels. As a result, increases or decreases in income from operations could be misinterpreted as the result of operating efficiencies or inefficiencies when they are actually caused by changes in inventory levels. This issue is not as prevalent with variable costing, where fixed manufacturing overhead costs are treated as period expenses and are not included in the cost of goods sold calculation.

Question 16

For a supervisor of a manufacturing department, which of the following costs is controllable?
A) direct materials
B) insurance on factory building
C) depreciation of factory building
D) sales salaries

Accepted Answer

Direct materials costs are controllable by the supervisor of a manufacturing department as they have discretion over the purchasing and usage of materials in the production process. The other costs listed (insurance on factory building, depreciation of factory building, sales salaries) are typically fixed or indirect costs that are not directly controllable by the department supervisor.

Question 17

The contribution margin ratio is computed as:
A) sales divided by contribution margin
B) contribution margin divided by sales
C) contribution margin divided by cost of sales
D) contribution margin divided by variable cost of sales

Accepted Answer

The contribution margin ratio is computed by dividing the contribution margin by sales. This ratio shows the percentage of sales revenue that is contributing towards covering fixed costs and generating profit. Therefore, the correct answer is B - contribution margin divided by sales.

Question 18

A business operated at 100% of capacity during its first month, with the following results:  Operating expenses: 
-What is the amount of the contribution margin that would be reported on the variable costing income statement?
A) $34,200
B) $20,200
C) $29,700
D) $26,200

Accepted Answer

The answer of A business operated at 100% of capacity...

Question 19

A business operated at 100% of capacity during its first month, with the following results:  Operating expenses: 
-What is the amount of the income from operations that would be reported on the variable costing income statement?
A) $18,900
B) $18,200
C) $18,000
D) $21,000

Accepted Answer

Using variable costing income statement formula,
Sales - Variable expenses - Fixed expenses = Income from operations
$27,000 - $8,400 - $5000 = $18,600
However, since the business operated at 100% of capacity, it means that there was no change in inventory levels. Therefore, the fixed overhead costs are not included in the cost of goods sold, but rather are expensed in the period they were incurred. This means that the fixed overhead costs of $5000 are considered as operating expenses and are deducted from the gross profit.
$23,000 - $8,400 - $5000 = $9,600
$9,600 + $8,600 = $18,200 (income from operation)

Question 20

In contribution margin analysis, the quantity factor is computed as:
A) the increase or decrease in the number of units sold multiplied by the planned unit sales price or unit cost
B) the increase or decrease in unit sales price or unit cost multiplied by the planned number of units to be sold
C) the increase or decrease in the number of units sold multiplied by the actual unit sales price or unit cost
D) the increase or decrease in the unit sales price or unit cost multiplied by the actual number of units sold

Accepted Answer

The quantity factor is used to calculate the effect of changes in the number of units sold on the contribution margin. It is computed as the increase or decrease in the number of units sold multiplied by the planned unit sales price or unit cost. This helps to analyze the impact of changes in sales volume on the profitability of the product or service.

Quiz 20: Variable Costing for Management Analysis

Management will use both variable and absorption costing in all of the following activities except:

Management should focus its sales and production efforts on the product or products that will provide

Which of the following isare) reasons) for easy identification and control of variable manufacturing costs under the variable costing method?

Which of the following is not true when determining the selling price for a product?

Costs that can be influenced by management at a specific level of management are called:

If sales totaled $200,000 for the current year 10,000 units at $20 each) and planned sales totaled $212,500 12,500 units at $17 each) , the effect of the unit price factor on the change in sales is a:

It would be acceptable to have the selling price of a product just above the variable costs and expenses of making and selling it in:

A business operated at 100% of capacity during its first month, with the following results: Operating expenses: -What is the amount of the gross profit that would be reported on the absorption costing income statement?

A business operated at 100% of capacity during its first month, with the following results: Operating expenses: -What is the amount of the income from operations that would be reported on the absorption costing income statement?

In the contribution margin analysis, the effect of a change in the number of units sold, assuming no change in unit sales price or unit cost, is referred to as the:

Accountants prefer the variable costing method over absorption costing method for evaluating the performance of a company because

The relative distribution of sales among various products sold is referred to as the:

Contribution margin reporting can be beneficial for analyzing which of the following?

In contribution margin analysis, the increase or decrease in unit sales price or unit cost on the number of units sold is referred to as the:

Under which inventory costing method could increases or decreases in income from operations be misinterpreted to be the result of operating efficiencies or inefficiencies?

For a supervisor of a manufacturing department, which of the following costs is controllable?

The contribution margin ratio is computed as:

A business operated at 100% of capacity during its first month, with the following results: Operating expenses: -What is the amount of the contribution margin that would be reported on the variable costing income statement?

A business operated at 100% of capacity during its first month, with the following results: Operating expenses: -What is the amount of the income from operations that would be reported on the variable costing income statement?

In contribution margin analysis, the quantity factor is computed as: