Multiple Choice Answers

1. The development of just-in-time (JIT) methods of production focused on
increasing sales revenue.
reducing inventories.
increasing customer service.
reducing operating expenses.
increasing product quality.

2. If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease, what will be the effect on the contribution margin ratio and the breakeven point respectively? The contribution margin ratio will _____ and the breakeven point will _____.
decrease; increase
increase; decrease
decrease; decrease
increase; increase

3. The field of accounting that depends on generally accepted accounting principles (GAAP) is called
cost accounting.
financial accounting.
managerial accounting.
responsibility accounting.
international accounting.

4. The relevance of a particular cost to a decision is determined by the: (CMA adapted, 12/96)
riskiness of the decision.
number of decision variables.
amount of the cost.
potential effect on the decision.
accuracy of the cost.

5. Which of the following statements is false?
In essence, the value chain and the supply chain are similar; each creates something for which the customer is willing to pay.
Accounting systems are important because they provide all the information for decisions commonly made by managers.
The supply chain is a linked set of organizations that exchange goods and services in combination to provide a final product or service to the customer.
Eliminating nonvalue-added activities always reduces costs without affecting the value of the product to customers.

6. Which of the following accounts would be a period cost rather than a product cost?
Depreciation on manufacturing machinery.
Maintenance on factory machines.
Production manager’s salary.
Direct Labor.
Freight out.

7. Given the following data:

Per Unit Total
Sales $15 $45,000
Less variable expenses 9 27,000
Contribution margin 6 18,000
Less fixed expenses 12,000
Net income $ 6,000

If sales decrease by 500 units, by what % would fixed expenses have to be reduced by to maintain current net income?
50.0%.
33.3%.
25.0%.
16.7%.
Some other percentage ____________.

8. At a break-even point of 400 units, variable costs were $400 and fixed costs were $200. What will the 401st unit sold contribute to operating profits before income taxes?
$ .50
$1.00
$1.50
$2.00
some other answer _______________.

9. A manufacturing company incurs direct labor costs as it transforms direct material into marketable products. The cost of the direct labor will be treated as a period cost on the income statement when the resulting:
payroll costs are paid.
payroll costs are incurred.
products are completed.
products are sold.

10. Given the following information:

Sales $5,000
Fixed Expenses 2,000
Variable Expenses 1,750

What would expected net income be if the company experienced a 10 percent increase in fixed costs and 10 percent increase in sales volume?
$1,750.
$1,550.
$1,250.
$1,375.