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1. The most difficult part of computing accurate unit costs is determining the proper amount of direct material cost to assign to each product.

A. True B. False

2. Activity-based costing systems rely on multiple bases for overhead cost allocation. A. True B. False

3. Traditional costing systems group costs according to activity cost pools. A. True B. False

4. A cost driver is a factor or activity that has a direct cause-effect relationship with the resources consumed.

A. True B. False

5. Two benefits of ABC are that it leads to better management decisions and arbitrary allocations are completely eliminated.

A. True B. False

6. An advantage of ABC is that it is inexpensive to implement. A. True B. False

7. ABM (Activity Based Management) leads to the identification of value-added and

non-value-added activities. A. True B. False

8. Product design is a unit level activity. A. True B. False

9. Activity Based Costing is used in service industries as well as manufacturing. A. True B. False

10. JIT is based on a pull-approach. A. True B. False

11. To reduce product cost distortions, many companies now use ____________ as the basis on which to allocate overhead in an automated manufacturing process.

A. direct labor B. direct materials C. machine hours D. units produced

12. Which of the following would be the best cost driver for the activity of purchasing? A. The number of employees in the purchasing department. B. Total number of items ordered. C. Total dollar value of items orders. D. The number of purchase orders issued.

13. As the complexity of a product's manufacturing operation increases, the number of activities and cost drivers used in an activity-based cost system will likely:

A. increase. B. stay about same. C. decrease. D. vary randomly.

14. Which of the following is not one of the four steps involved in calculating unit costs under activity-based costing?

A. Assign manufacturing overhead costs for each cost pool to products, using the overhead rates.

B. Identify the cost driver that has a minor correlation to the costs accumulated in the activity cost pool.

C. Identify and classify the major activities involved in the manufacture of specific products, and allocate manufacturing overhead costs to the appropriate cost pools.

D. Compute the overhead rate per cost driver.

15. Which of the following should not be included as part of the cost pool of machine setups?

A. Depreciation on machines and parts used for different setups. B. Salaries of those supervising machine operators. C. Supplies needed in changing machines from one production setting to another. D. Cost of accounts payable supervisor's salary.

16. In order to achieve the most accurate costing, the cost driver chosen for a given activity must show a ___________ between the cost driver and the actual consumption of overhead costs.

A. reasonable relationship. B. low degree of correlation. C. high degree of correlation. D. moderate connection.

17. The activity-based overhead rate is computed by dividing: A. Estimated overhead per activity by expected use of cost drivers per activity.

B. Actual overhead per activity by expected use of cost drivers per activity. C. Estimated overhead per activity by actual use of cost drivers per activity.

d ) Actual overhead per activity by actual use of cost drivers per activity.

18. To assign overhead costs to an individual product, the activity-based overhead rate is multiplied by

A. the number of products produced during the period. B. the number of cost drivers expected to be used per product. C. the number of direct labor hours used during the period. D. the number of employees who participate in manufacturing the product.

19. If a traditional costing system allocates too much overhead to one product, the firm is likely to experience which of the following problems?

A. An increase in the number of defective products produced. B. The firm may lose market share to competitors. C. The firm may be underpricing the product. D. The product is in danger of becoming obsolete.

20. Which of the following is not a reason for the more accurate product costing that results from using activity-based costing?

A. Activity-based costing leads to more cost pools. B. Activity-based costing leads to enhanced control over overhead costs. C. Employee turnover will decrease as a result of using activity-based costing. D. Activity-based costing leads to better management decisions.

21. Which of the following is a limitation of activity-based costing? A. Activity-based costing can be expensive to use. B. Activity-based costing systems can only be used by firms with a state-of-the-

art computer system. C. Activity-based costing can be used only if approved by the Institute of

Management Accountants. D. Activity-based costing can only be used by firms involved in manufacturing.

22. Overhead applied to Alpha using direct labor hours and traditional costing is: A. $105,000. B. $134,400. C. $145,600. D. $168,000.

23. Overhead applied to Omega using activity-based costing is: A. $112,000. B. $133,333. C. $145,600. D. $175,000.

24. Which of the following is NOT one of the classification levels of activity-based costing activities?

A. Facility-level activities. B. Macro-level activities. C. Product-level activities. D. Batch-level activities.

25. Which of the following is not an important element in successfully operating a just-in-time approach to production?

A. A multiskilled workforce. B. A total quality control system. C. Dependable suppliers. D. All of the above are important elements.

Retake Test

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1. Variable costs are costs that: A. vary in total directly and proportionately with changes in the activity level.

B. remain the same per unit at every activity level. C. Neither of the above. D. Both (a) and (b) above.

2. The relevant range is: A. the range of activity in which variable costs will be curvilinear. B. the range of activity in which fixed costs will be curvilinear. C. the range over which the company expects to operate during a year. D. usually from zero to 100% of operating capacity.

3. Mixed costs consist of a: A. variable cost element and a fixed cost element. B. fixed cost element and a controllable cost element. C. relevant cost element and a controllable cost element. D. variable cost element and a relevant cost element.

4. Kendra Corporation's total utility costs during the past year were $1,200 during its highest month and $600 during its lowest month. These costs corresponded with 10,000 units of production during the high month and 2,000 units during the low month. What are the fixed and variable components of its utility costs using the high-low method?

A. $0.075 variable and $450 fixed. B. $0.120 variable and $0 fixed. C. $0.300 variable and $0 fixed. D. $0.060 variable and $600 fixed.

5. One of the following is not involved in CVP analysis. That factor is: A. sales mix. B. unit selling prices. C. fixed costs per unit. D. volume or level of activity.

6. Contribution margin: A. is revenue remaining after deducting variable costs. B. may be expressed as contribution margin per unit. C. is selling price less cost of goods sold. D. Both (a) and (b) above.

7. Cournot Company sells 100,000 wrenches for $12 a unit. Fixed costs are $300,000, and net income is $200,000. What should be reported as variable expenses in the CVP income statement?

A. $700,000. B. $900,000. C. $500,000. D. $1,000,000.

8. Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25%. If Gossen will break even at this level of sales, what are the fixed costs?

A. $100,000. B. $160,000. C. $200,000. D. $300,000.

9. The mathematical equation for computing required sales to obtain target net income is: Required roll up sales =

A. Variable costs + ???Target net income. B. Variable costs + ???Fixed costs + ???Target net income. C. Fixed costs + Target net income. D. No correct answer is given.

10. Marshall Company had actual sales of $600,000 when break-even sales were $420,000. What is the margin of safety ratio?

A. 25%.

B. 30%. C. 331/3%. D. 45%.

Retake Test

1. Fixed costs are costs that remain the same per unit regardless of changes in the activity level.

A. True

B. False

2. The range over which a company expects to operate during a year is called the relevant range of the activity index.

A. True

B. False

3. Mixed costs change proportionately with changes in the activity level.

A. True

B. False

4. Cost-volume-profit analysis assumes that changes in activity are the only factors that affect costs.

A. True

B. False

5. The contribution margin ratio is computed by dividing contribution margin by unit selling price.

A. True

B. False

6. At the break-even point, contribution margin equals total variable costs.

A. True

B. False

7. The amount of income or loss at each level of sales can be derived from the total sales and total cost lines in a CVP graph.

A. True

B. False

8. Target net income is an income objective for individual product lines set by management.

A. True

B. False

9. Margin of safety is the difference between actual sales and sales at the break-even point.

A. True

B. False

10. When companies prepare a detailed CVP income statement, they provide more detail about specific variable costs but not fixed-cost items.

A. True

B. False

11. A cost that remains the same per unit at every level of activity is a:

A. fixed cost.

B. mixed cost.

C. semivariable cost.

D. variable cost.

12. Costs that change in total but not proportionately with changes in the activity level are:

A. fixed costs.

B. mixed costs.

C. semifixed costs.

D. variable costs.

13. An example of a mixed cost is:

A. direct materials.

B. supervisory salaries.

C. utility costs.

D. property taxes.

14. Cost-volume-profit analysis includes all of the following assumptions except:

A. the behavior of costs is curvilinear throughout the relevant range.

B. costs can be classified accurately as either variable or fixed.

C. changes in activity are the only factors that affect costs.

D. all units produced are sold.

15. CVP analysis considers the interrelationships among all of the following components except:

A. volume/level of activity.

B. variable cost per unit.

C. unit selling prices.

D. fixed costs per unit.

16. Contribution margin is:

A. the amount of revenue remaining after deducting fixed costs.

B. the amount available to cover fixed costs and contribute to income for the company.

C. sales less fixed costs.

D. unit selling price less unit fixed costs.

17. The break-even point can be:

A. computed from a mathematical equation.

B. computed by using contribution margin.

C. derived from a cost-volume-profit graph.

D. All of the options are correct.

18. The break-even point in dollars is computed by dividing:

A. fixed costs by contribution margin per unit.

B. variable costs by contribution margin per unit.

C. fixed costs by contribution margin ratio.

D. variable costs by contribution margin ratio.

19. At the break-even point:

A. sales equal total variable costs.

B. contribution margin equals total variable costs.

C. contribution margin equals total fixed costs.

D. sales equal total fixed costs.

20. The margin of safety ratio is computed by dividing:

A. actual sales by break-even sales.

B. margin of safety in dollars by actual sales.

C. margin of safety in dollars by break-even sales.

D. break-even sales by margin of safety in dollars.

21. Required sales in dollars to meet a target net income is computed by dividing:

A. fixed costs plus target net income by contribution margin per unit.

B. variable costs plus target net income by contribution margin per unit.

C. fixed costs plus target net income by contribution margin ratio.

D. total costs plus target net income by contribution margin ratio.

22. Morgan Company had actual sales $1,000,000 and its break-even sales were $800,000. Morgan's margin of safety ratio is

A. 20%.

B. 25%.

C. 75%.

D. 80%.

23. Williams Company expects to sell 500,000 units for $6 per unit. The contribution margin ratio is 30%. If Williams will break even at this level of sales, fixed costs are:

A. $150,000.

B. $300,000.

C. $900,000.

D. $2,100,000.

24. Hampton Company has total fixed costs of $300,000 and a contribution margin ratio of 40%. Hampton's target net income is $240,000. Sales in dollars to meet the target net income would be

A. $600,000.

B. $750,000.

C. $900,000.

D. $1,350,000.

25. A company has required sales of $1,700,000 to meet its target net income. It has fixed costs of $300,000 and the contribution margin ratio is 30%. The company's target net income is

A. $90,000.

B. $210,000.

C. $420,000.

D. $510,000.

This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.

Grade the Test

0% (0 out of 25 correct)

1. Fixed costs are costs that remain the same per unit regardless of changes in the activity level.

A. True

B. False

2. The range over which a company expects to operate during a year is called the relevant range of the activity index.

A. True B. False

3. Mixed costs change proportionately with changes in the activity level. A. True B. False

4. Cost-volume-profit analysis assumes that changes in activity are the only factors that affect costs.

A. True B. False

5. The contribution margin ratio is computed by dividing contribution margin by unit selling price.

A. True B. False

6. At the break-even point, contribution margin equals total variable costs. A. True B. False

7. The amount of income or loss at each level of sales can be derived from the total sales and total cost lines in a CVP graph.

A. True B. False

8. Target net income is an income objective for individual product lines set by management.

A. True B. False

9. Margin of safety is the difference between actual sales and sales at the break-even point.

A. True B. False

10. When companies prepare a detailed CVP income statement, they provide more detail about specific variable costs but not fixed-cost items.

A. True B. False

11. A cost that remains the same per unit at every level of activity is a: A. fixed cost. B. mixed cost. C. semivariable cost. D. variable cost.

12. Costs that change in total but not proportionately with changes in the activity level are:

A. fixed costs. B. mixed costs. C. semifixed costs. D. variable costs.

13. An example of a mixed cost is: A. direct materials. B. supervisory salaries. C. utility costs.

D. property taxes.

14. Cost-volume-profit analysis includes all of the following assumptions except: A. the behavior of costs is curvilinear throughout the relevant range. B. costs can be classified accurately as either variable or fixed. C. changes in activity are the only factors that affect costs. D. all units produced are sold.

15. CVP analysis considers the interrelationships among all of the following components except:

A. volume/level of activity. B. variable cost per unit. C. unit selling prices. D. fixed costs per unit.

16. Contribution margin is: A. the amount of revenue remaining after deducting fixed costs. B. the amount available to cover fixed costs and contribute to income for the

company. C. sales less fixed costs. D. unit selling price less unit fixed costs.

17. The break-even point can be: A. computed from a mathematical equation. B. computed by using contribution margin. C. derived from a cost-volume-profit graph. D. All of the options are correct.

18. The break-even point in dollars is computed by dividing: A. fixed costs by contribution margin per unit. B. variable costs by contribution margin per unit.

C. fixed costs by contribution margin ratio. D. variable costs by contribution margin ratio.

19. At the break-even point: A. sales equal total variable costs. B. contribution margin equals total variable costs. C. contribution margin equals total fixed costs. D. sales equal total fixed costs.

20. The margin of safety ratio is computed by dividing: A. actual sales by break-even sales. B. margin of safety in dollars by actual sales. C. margin of safety in dollars by break-even sales. D. break-even sales by margin of safety in dollars.

21. Required sales in dollars to meet a target net income is computed by dividing: A. fixed costs plus target net income by contribution margin per unit. B. variable costs plus target net income by contribution margin per unit. C. fixed costs plus target net income by contribution margin ratio. D. total costs plus target net income by contribution margin ratio.

22. Morgan Company had actual sales $1,000,000 and its break-even sales were $800,000. Morgan's margin of safety ratio is

A. 20%. B. 25%. C. 75%. D. 80%.

23. Williams Company expects to sell 500,000 units for $6 per unit. The contribution margin ratio is 30%. If Williams will break even at this level of sales, fixed costs are:

A. $150,000.

B. $300,000. C. $900,000. D. $2,100,000.

24. Hampton Company has total fixed costs of $300,000 and a contribution margin ratio of 40%. Hampton's target net income is $240,000. Sales in dollars to meet the target net income would be

A. $600,000. B. $750,000. C. $900,000. D. $1,350,000.

25. A company has required sales of $1,700,000 to meet its target net income. It has fixed costs of $300,000 and the contribution margin ratio is 30%. The company's target net income is

A. $90,000. B. $210,000. C. $420,000. D. $510,000.

Retake Test