Multiple Choice Answers

1. Which of the following is NOT a step in the decision making process?
a)Explore workable alternatives
b)Determine relevant cost and revenue data
c)Consider appropriate non-financial factors
d)Make decision

2. Which of the following is NOT a consideration when determining whether to continue making a part or to buy that part?
a)Timing of the cash receipts and expenditures
b)Opportunity cost
c)Impact on employees
d)Sunk cost

3. Contribution margin is calculated by deducting:
a)variable costs from revenue
b)variable costs and controllable fixed costs from revenue
c)variable costs and common costs from revenue
d)fixed costs from revenue

4. A segment of a business probably should be discontinued if:
a)its common costs exceed its contribution margin
b)its contribution margin exceeds its controllable fixed costs and its common costs
c)if cannot produce a contribution margin
d)it has a net loss

5. When direct costing is used, cost of goods sold reflects:
a)both variable and fixed manufacturing costs
b)variable manufacturing costs and variable selling and administrative expenses
c)variable manufacturing costs only
d)fixed manufacturing costs only

6. On an income statement prepared with a direct costing approach, the excess of sales over the cost of goods sold, based on variable costs only, is referred to as the:
a)marginal gross profit on sales
b)manufacturing margin
c)marginal income on sales
d)contribution margin

7. Fixed manufacturing costs are written off as current expenses of the period in which they occurred when using_____costs.
a)direct
b)standard
c)absorption
d)differential

8. Which inventory costing system is NOT acceptable for financial reporting purposes?
a)Absorption costing
b)Direct costing
c)Standard costing
d)Variable costing

9. Which of the following would NOT be relevant to a decision about whether to continue making a part or whether to buy it from an outside supplier?
a)Alternative uses for the plant where the part was produced if the part is purchased
b)A fee previously spent for design of the part
c)The variable costs of making the part
d)The number of additional employees needed to make the part

10. A company has sales of $100,000, ending finished goods inventory of $9,000, variable manufacturing costs of $50,000, and fixed manufacturing costs of $28,000 for the year. Assuming the company uses direct costing, the manufacturing margin for the year is:
a)$22,000
b)$31,000
c)$59,000
d)$13,000

11.A segment of a business reported a contribution margin of $36,000 and controllable fixed costs of $12,000. If the segment had been eliminated, the company-wide net income would have been:
a)$12,000 higher
b)$24,000 lower
c)$36,000 lower
d)$24,000 higher

12. If a decision must be made to close a warehouse, non-refundable prepaid rent on the warehouse is a(n)________cost.
a)opportunity
b)common
c)sunk
d)variable

13. When the balance in ending finished goods inventory increases, net income under absorption costing is:
a)lower than under direct costing
b)higher than under direct costing
c)the same under direct costing
d)unaffected by the increase

14. Which of the following is the first step in the decision-making process?
a)Evaluate the cost and revenue data
b)Identify workable alternatives
c)Define the problem
d)Consider appropriate nonfinancial factors

15. Which of the following is NOT a consideration regarding a special order?
a)If the company has sufficient capacity
b)If the special order jeopardized sales to existing customers
c)Federal laws regarding the price
d)whether employee morale would be affected

16. Which of the following cost amounts can be found in a firms accounting records?
a)Opportunity costs
b)Differential costs
c)Incremental costs
d)Sunk costs

17. Costs that are not directly traceable to a specific segment of a business are called_________costs.
a)sunk
b)common
c)fixed
d)incremental

18. Which of the following is NOT true of the direct costing procedure?
a)Variable and fixed costs are considered as part of the cost of goods manufactured.
b)The cost of goods sold, based solely on variable costs, is subtracted from net sales to arrive at the manufacturing margin.
c)Variable selling expenses are deducted from manufacturing margin
d)Variable administrative expenses are deducted from the manufacturing margin

19. Data for a firms first year of operation is given below. The firm uses absorption costing.
Units produced (no work in process) 6,000
Units sold 5,000
Units in ending inventory of finished goods 1,000
Sales price for each unit $75
Variable manufacturing costs for each unit mnfctrd $30
Variable selling and admin. Exp. For ea unit sold $16
Fixed manfctg costs for the year $90,000
Fixed selling and admin. Exp. For the year $65,000
The cost of the goods sold for the year is:
a. $270,000
b. $225,000
c. $150,000
d. $45,000.

20. Data for a firms first year of operation is given below. The firm uses direct costing.
Units produced (no work in process) 6,000
Units sold 5,000
Units in ending inventory of finished goods 1,000
Sales price for each unit $75
Variable manufacturing costs for each unit mnfctrd $30
Variable selling and admin. Exp. For ea unit sold $16
Fixed manfctg costs for the year $90,000
Fixed selling and admin. Exp. For the year $65,000
The cost of the goods sold for the year is:
a. $270,000
b. $225,000
c. $150,000
d. $45,000.