Question 1

The systematic examination of differences between planned and actual contribution margins is termed contribution margin analysis.

Accepted Answer

This is a true statement. Contribution margin analysis involves comparing planned and actual contribution margins to identify the reasons for any differences and make adjustments as needed.

Question 2

For short-run production planning, information in the absorption costing format is more useful to management than is information in the variable costing format.

Accepted Answer

In short-run production planning, information in the variable costing format is generally more useful to management as it allows them to make decisions based on the marginal costs of producing additional units, which is important for short-term pricing and profit-maximizing strategies. Absorption costing includes fixed overhead costs in the cost of production, which can be more useful for long-term planning and decision-making but may not be as helpful for short-term decisions.

Question 3

Companies prepare contribution margin reports by market segments and product segments because products contribute to profitability in various ways.

Accepted Answer

Contribution margin reports by market segments and product segments allow companies to analyze the profitability of each product and market segment separately, making it easier to identify which areas are contributing the most to profitability. This information can then be used to make strategic decisions about product mix, pricing, and marketing efforts to maximize profitability.

Question 4

In evaluating the performance of salespersons, the salesperson with the highest level of sales should be evaluated as the best performer.

Accepted Answer

The highest level of sales does not necessarily indicate the best performer. Other factors such as customer satisfaction, ability to meet targets, and teamwork should also be considered in evaluating a salesperson's performance.

Question 5

In contribution margin analysis, the quantity factor is computed as the difference between actual quantity sold and the planned quantity sold, multiplied by the planned unit sales price or unit cost.

Accepted Answer

The quantity factor is indeed computed as the difference between actual quantity sold and the planned quantity sold, multiplied by the planned unit sales price or unit cost in contribution margin analysis.

Question 6

In the long run, for a business to remain in operation, the revenues from products sold should normally cover all costs and expenses and provide a reasonable income.

Accepted Answer

This is a basic principle of profitability in business. If a business consistently does not generate revenues to cover costs and provide a reasonable income, it is not financially sustainable in the long run.

Question 7

If the ability to sell and the amount of production facilities devoted to each of two products is equal, it is profitable to increase the sales of that product with the lowest contribution margin.

Accepted Answer

Increasing sales of the product with the higher contribution margin would be more profitable because the contribution margin represents the per-unit profit before fixed costs, meaning more profit is generated per unit sold.

Question 8

In contribution margin analysis, the effect of a difference in unit sales price or unit cost on the number of units sold is termed the unit price or unit cost factor.

Accepted Answer

This statement is correct. The contribution margin analysis examines the relationship between sales volume, unit selling price, and variable cost per unit in order to determine the profit potential of a product or service. The unit price or unit cost factor refers to the impact that a change in unit selling price or variable cost per unit has on the number of units that can be sold in order to maintain the same level of profitability.

Question 9

The contribution margin ratio is computed as contribution margin divided by sales.

Accepted Answer

The contribution margin ratio is calculated by dividing the contribution margin (sales minus variable expenses) by sales.

Question 10

In the short run, the selling price of a product should normally not be less than the variable costs and expenses of making and selling it.

Accepted Answer

In the short run, the selling price should cover at least the variable costs and expenses of making and selling the product to avoid losses. This is because in the short run, fixed costs cannot be easily adjusted, so the selling price should cover the variable costs to ensure that the company can continue to operate.

Question 11

For short-run production planning, information in the variable costing format is more useful to management than is information in the absorption costing concept format.

Accepted Answer

In the short run, variable costing provides a more accurate picture of the cost behavior of a firm's products, as fixed costs are not allocated to individual products. This allows management to understand the effect of changes in production levels on profits more clearly. Absorption costing, on the other hand, allocates fixed costs to products and can result in distorted information about the costs and profitability of products.

Question 12

In contribution margin analysis, the effect of a difference in unit sales price or unit cost on the number of units sold is termed the quantity factor.

Accepted Answer

In contribution margin analysis, the effect of a difference in unit sales price or unit cost on the number of units sold is termed the sales mix variance, not the quantity factor. The quantity factor typically refers to the impact of a change in the quantity sold on total contribution margin, separate from changes in sales price or unit cost.

Question 13

In contribution margin analysis, the unit price or unit cost factor is computed as the difference between actual quantity sold and the planned quantity sold, multiplied by the planned unit sales price or unit cost.

Accepted Answer

The unit price or unit cost factor in contribution margin analysis is computed as the difference between the actual unit sales price or unit cost and the planned unit sales price or unit cost, multiplied by the actual quantity sold.

Question 14

Sales mix is generally defined as the relative distribution of sales among the various products sold.

Accepted Answer

Sales mix refers to the proportionate distribution of sales among the different products or services offered by a company. It helps in analyzing the contribution of each product or service towards the overall revenue and profit of the company.

Question 15

Direct labor cost is an example of a controllable cost for the supervisor of a manufacturing department.

Accepted Answer

Direct labor cost is a cost that can be controlled by the supervisor of a manufacturing department through the use of effective labor management techniques, such as scheduling, training, and performance management. Thus, it is considered a controllable cost.

Question 16

If the ability to sell and the amount of production facilities devoted to each of two products is equal, it is profitable to increase the sales of that product with the highest contribution margin.

Accepted Answer

The contribution margin is the difference between the selling price and the variable cost associated with producing the product. Therefore, increasing sales of the product with the highest contribution margin will result in more profit.

Question 17

In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in unit sales price or cost, is termed the unit price or unit cost factor.

Accepted Answer

In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in unit sales price or cost, is termed the sales volume factor, not the unit price or unit cost factor.

Question 18

In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in unit sales price or cost, is termed the quantity factor.

Accepted Answer

This is a correct statement about the quantity factor in contribution margin analysis. It refers to the impact on total contribution margin resulting from changes in the volume of units sold, without any change in the per-unit selling price or variable cost.

Question 19

Ford's Expedition sport utility vehicle is its most profitable model.Therefore, Ford need not promote its Expedition model anymore.

Accepted Answer

Just because the Expedition SUV is profitable for Ford does not mean that they should stop promoting it. Promoting the model can help to maintain or increase its profitability, as well as attract new customers and retain current ones.

Question 20

In contribution margin analysis, the unit price or unit cost factor is computed as the difference between the actual unit price or unit cost and the planned unit price or unit cost, multiplied by the actual quantity sold.

Accepted Answer

This is the correct formula for calculating the contribution margin per unit. It takes into account the difference between actual and planned prices and costs, as well as the quantity sold, to determine the overall profitability of a product or service.

Quiz 5: Variable Costing for Management Analysis