Review Materials

Chapters 8, 10, 3, and 4

Chapter 8 (Absorption and Variable Costing)

1. Generally Accepted Accounting Principles (GAAP) require the use of which accounting method for external
reporting?
a. absorption costing.
b. variable costing.
c. transfer price costing.
d. responsibility costing.
e. all of these are acceptable for GAAP.

2. Variable costing is
a. a good way to value inventories for the balance sheet.
b. used for external reporting purposes.
c. not useful for companies with multiple segments.
d. a useful tool for management decision making.
e. can only be used by start-up companies.

3. Gross margin is to absorption costing as ____ is to variable costing.

a. gross profit
b. contribution margin
c. Income
d. territory margin

4. When monthly production volume is constant and sales volume is less than production, income determined
with variable costing procedures will
a. always be greater than income determined using absorption costing.
b. always be less than income determined using absorption costing.
c. be equal to income determined using absorption costing.
d. be equal to contribution margin per unit times units sold.

5. When production is less than sales volume, income under absorption costing will be ____ income using variable
costing procedures.
a. greater than
b. less than
c. equal to
d. randomly different than

6. Inventory values calculated using variable costing as opposed to absorption costing will generally be
a. equal.
b. less.
c. greater.
d. twice as much.

7. Which of the following statements is true?

a. Absorption costing income exceeds variable costing income when units produced and sold are equal.
b. Variable costing income exceeds absorption costing income when units produced exceed units sold.
c. Absorption costing income exceeds variable costing income when units produced are less than units
sold.
d. Absorption costing income exceeds variable costing income when units produced are greater than
units sold.

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8. All of the following costs are included in inventory under absorption costing except
a. direct materials.
b. direct labor.
c. fixed selling expenses.
d. fixed factory overhead.

9. What is the primary difference between variable and absorption costing?

a. inclusion of fixed selling expenses in product costs
b. inclusion of variable factory overhead in period costs
c. inclusion of fixed selling expenses in period costs
d. inclusion of fixed factory overhead in product costs

Figure 8-1.
10. Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year
were as follows:

Direct materials $25,000

Direct labor 35,000
Variable factory overhead 12,000
Fixed factory overhead 37,000
Variable selling expense 9,000
Fixed selling expense 7,500
Fixed administrative expense 15,500

Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000
units.

Refer to Figure 8-1. Assuming that beginning inventory was zero, what is the value of ending inventory under
absorption costing?
a. $5,480
b. $4,500
c. $10,900
d. $12,600
e. $5,750

11. Refer to Figure 8-1. Assuming that beginning inventory was zero, what is the value of ending inventory under
variable costing?
a. $3,300
b. $2,500
c. $5,000
d. $3,720
e. $7,200

12. Refer to Figure 8-1. What is operating income for last year under absorption costing?
a. $41,000
b. $67,520
c. $85,900
d. $111,300
e. $45,000

13. Refer to Figure 8-1. What is operating income for last year under variable costing?
a. $111,800
b. $91,780
c. $82,200
d. $78,400
e. $66,350

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Figure 8-2.
14. Loring Company had the following data for the month:

Variable costs per unit:

Direct materials $4.00
Direct labor 3.20
Variable overhead 1.00
Variable selling expenses 0.40

Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the
month, 2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit
product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at price of
$14. Selling and administrative expense for the month, all fixed, totaled $3,600.

Refer to Figure 8-2. What is the unit product cost under absorption costing?
a. $8.60
b. $10.60
c. $8.20
d. $10.20
e. $7.20

15. Refer to Figure 8-2. What is operating income under variable costing?
a. $3,540
b. $7,980
c. $11,340
d. −$540
e. $3,740

16. Refer to Figure 8-2. What is the unit product cost under variable costing?
a. $8.60
b. $10.60
c. $8.20
d. $10.20
e. $7.20

17. Refer to Figure 8-2. What is operating income under absorption costing?
a. $3,540
b. $7,980
c. $11,340
d. −$540
e. $3,740

Figure 8-4.
18. The following information pertains to Mayberry Corporation:

Beginning inventory 1,000 units

Ending inventory 6,000 units
Direct labor per unit $40
Direct materials per unit 20
Variable overhead per unit 10
Fixed overhead per unit 30
Variable selling and admin. costs per unit 6
Fixed selling and admin. costs per unit 14

Refer to Figure 8-4. What is the value of the ending inventory using the absorption costing method?
a. $240,000
b. $360,000
c. $600,000
d. $420,000

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19. Refer to Figure 8-4. Absorption costing income would be ____ variable costing income.
a. $150,000 greater than
b. $150,000 less than
c. $240,000 less than
d. $240,000 greater than

20. Refer to Figure 8-4. What is the value of the ending inventory using the variable costing method?
a. $240,000
b. $360,000
c. $350,000
d. $420,000

Figure 8-5.
21. Sanders Company has the following information for last year:

Selling price $190 per unit

Variable production costs $52 per unit produced
Variable selling and admin. expenses $18 per unit sold
Fixed production costs $240,000
Fixed selling and admin. expenses $180,000
Units produced 12,000
Units sold 7,000
There were no beginning inventories.

Refer to Figure 8-5. What is the value of ending inventory for Sanders using the absorption costing method?
a. $360,000
b. $280,000
c. $220,000
d. $380,000

22. Refer to Figure 8-5. What is the income for Sanders using the absorption costing method?
a. $520,000
b. $480,000
c. $1,200,000
d. $500,000

23. Refer to Figure 8-5. What is the cost of ending inventory for Sanders using the variable costing method?
a. $300,000
b. $280,000
c. $120,000
d. $260,000

24. Refer to Figure 8-5. What is the income for Sanders using the variable costing method?
a. $420,000
b. $480,000
c. $520,000
d. $500,000

Figure 8-6.
25. Bailey Company incurred the following costs in manufacturing desk calculators:

Direct materials $18

Indirect materials (variable) 3
Direct labor 9
Indirect labor (variable) 7
Other variable factory overhead 13
Fixed factory overhead 34
Variable selling expenses 26
Fixed selling expenses 12

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During the period, the company produced and sold 2,000 units.

Refer to Figure 8-6. What is the inventory cost per unit using absorption costing?
a. $104
b. $77
c. $84
d. $32

26. Refer to Figure 8-6. What is the inventory cost per unit using variable costing?
a. $52
b. $66
c. $72
d. $50

Figure 8-7.
27. Ramon Company reported the following units of production and sales for June and July:

Units
Month Produced Sold
June 100,000 90,000
July 100,000 105,000
Income under absorption costing for June was $40,000; income under variable costing for July was $50,000. Fixed
costs were $600,000 for each month.

Refer to Figure 8-7. How much was income for July using absorption costing?
a. $50,000
b. $20,000
c. $80,000
d. $40,000

Chapter 10
Standard Costing

28. Standards based on the amount of input that should be used per unit of output are called
a. quantity standards.
b. price standards.
c. ideal standards.
d. currently attainable standards.
e. kaizen standards.

29. Price standards are based on

a. the amount of input that should be used per unit of output.
b. the amount that should be paid for the total quantity of input to be used.
c. the amount that should be paid per unit of output.
d. the amount that should be paid per unit of input purchased.
e. None of these.

30. The sources of quantitative standards include

a. historical experience.
b. engineering studies.
c. input from operating personnel.
d. historical experience, engineering studies, and input from operating personnel.
e. None of these.

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31. Which of the following is true regarding historical experience in standard setting?
a. It provides very rigorous guidelines.
b. Operating personnel may not be able to achieve operating standards based on historical experience.
c. It should be used with caution because it can perpetuate inefficiencies.
d. Standards based on historical experience are better than standards based on engineering studies.
e. None of these.

32. Which of the following is not true regarding engineering studies?

a. They can determine the most efficient way to operate.
b. They are often achievable by operating personnel.
c. They provide very rigorous guidelines.
d. All of these statements are true.
e. More than two of these statements are true.

33. In setting price standards for materials and labor,

a. the purchasing department must consider discounts, freight, and quality.
b. personnel must consider payroll taxes, fringe benefits, and qualifications.
c. it is the joint responsibility of operations, purchasing, personnel, and accounting.
d. All of these.
e. None of these.

34. Ideal standards

a. do not allow for machine breakdowns, slack, or lack of skill (even momentarily).
b. demand maximum efficiency.
c. can be achieved only if everything operates perfectly.
d. All of these.
e. None of these.

35. Which of the following is true regarding currently attainable standards?

a. They can be achieved under efficient operating conditions.
b. Allowance is made for normal breakdowns, interruptions, etc.
c. They are challenging but achievable.
d. They tend to achieve higher performance levels from personnel.
e. All of these.

36. Standard cost systems can enhance operational control through the use of
a. efficiency variances which indicate the need for corrective action.
b. price variances which indicate the need for better spending control.
c. standard costs which indicate the desired cost of a unit of input.
d. actual costs which indicate the price received for units sold.
e. All of these.

37. Which of the following is true regarding standard cost systems in manufacturing environments that emphasize
continuous improvement and just-in-time manufacturing and purchasing?
a. The standard cost system enhances the operational control.
b. The materials price variance may encourage the purchasing department to buy in smaller quantities to
reduce inventories.
c. Variances can be computed and presented in reports to higher-level managers.
d. The operational level will benefit from the detailed computation of variances.
e. None of these.

38. In a standard cost system, costs are assigned to all of the following, except for
a. direct materials.
b. direct labor.
c. variable overhead.
d. fixed overhead.
e. none of these.

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39. The standard cost system differs from the actual cost system in the assignment of
a. direct materials.
b. direct labor.
c. overhead.
d. all of the manufacturing inputs.
e. none of the manufacturing inputs.

40. Which of the following is not true regarding normal costing systems?
a. A normal costing system predetermines overhead costs.
b. A normal costing system assigns direct materials and direct labor to products using a predetermined
rate.
c. In a normal costing system overhead is assigned using a budgeted rate and actual activity.
d. A normal costing system has less capacity for control than a standard costing system.
e. All of these statements are true.

41. Which of the following is not an advantage of standard costing over normal costing and actual costing?
a. A greater capacity for control.
b. Ability to easily distinguish the FIFO and weighted average methods of accounting for beginning
inventory costs.
c. Computing a unit cost for each equivalent unit cost category is not necessary.
d. Providing for readily available unit cost information.
e. All of these are advantages of standard costing.

Figure 10-1.

42. Flying High Company manufactures model airplanes. During the month, it manufactured 10,000 airplanes.
Each one used an average of 6.5 direct labor hours and an average of 1.5 sheets of aluminum. It normally
manufactures 7,500 airplanes. Materials and labor standards for making the airplanes are:

Direct Materials (1 sheet of aluminum @ $10.00) $10.00

Direct Materials (other accessories @ $8.75) 8.75
Direct Labor (6 hours @ $7.00) 42.00

Refer to Figure 10-1. Compute the standard hours allowed for a volume of 10,000 airplanes.
a. 60,000 hours
b. 420,000 hours
c. 70,000 hours
d. 65,000 hours

43. Refer to Figure 10-1. Compute the standard number of sheets of aluminum allowed for a volume of 10,000
airplanes.
a. 15,000 sheets
b. 10,000 sheets
c. 7,500 sheets
d. 11,250 sheets

44. Variances indicate

a. that actual performance is not going according to plan.
b. the cause of the variance.
c. who is responsible for the variance.
d. when the variance should be investigated.
e. none of these.

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45. The difference between the actual cost of the input and its planned cost is
a. the total budget variance.
b. the usage variance.
c. the price variance.
d. the efficiency variance.
e. the budget variance.

46. Which of the following is true concerning the materials price variance?
a. It is the difference between the actual and standard unit price of an input multiplied by the number of
inputs used.
b. It is the difference between the actual and standard unit price of an output multiplied by the number
of inputs used.
c. It is the difference between the actual and standard unit price of an input multiplied by the number of
inputs purchased.
d. It is the difference between the actual and standard unit price of an output multiplied by the number
of inputs purchased.
e. None of these.

47. The usage variance is the difference between the actual and standard quantity of inputs
a. multiplied by the standard unit price of the input.
b. budgeted multiplied by the standard unit price of the input.
c. multiplied by the actual unit price of the input.
d. purchased multiplied by the actual unit price of the input.
e. None of these.

48. Which of the following is true regarding variances?

a. Unfavorable variances occur whenever actual prices or actual usage of inputs are greater than
standard prices or standard usage.
b. Favorable variances occur whenever actual prices or actual usage of inputs are greater than standard
prices or standard usage.
c. Unfavorable variances are always credits.
d. Favorable variances are always debits.
e. None of these.

49. All of the following are true regarding variance investigation except
a. the investigation should be undertaken only if the anticipated benefits are greater than the expected
costs.
b. managers must consider whether a variance will recur.
c. it is difficult to assess the costs and benefits of variance analysis on a case-by-case basis.
d. variances are not investigated unless they are large enough to be of a concern.
e. every variance is investigated.

50. Which of the following is not true concerning control limits?

a. Control limits are the top and bottom measures of the allowable range.
b. The upper control limit is the standard plus the allowable deviation.
c. The lower control limit is the standard minus the allowable deviation.
d. In current practice, control limits are set objectively using standard formulas.
e. Variances that fall outside the control limits are investigated.

51. Acme Company's standard cost is $500,000. The allowable deviation is ±10%. Its actual costs for three months
are

January $520,000
February $550,000
March $575,000

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The upper and lower control limits are, respectively,
a. $550,000 and $450,000
b. $500,000 and $450,000
c. $550,000 and $500,000
d. $575,000 and $520,000

Figure 10-2.

48. Highland Company's standard cost is $250,000. The allowable deviation is ±10%. Its actual costs for six
months are

January $235,000
February 220,000
March 245,000
April 265,000
May 270,000
June 280,000

Refer to Figure 10-2. The upper and lower control limits are, respectively,
a. $250,000 and $225,000
b. $305,000 and $195,000
c. $275,000 and $250,000
d. $275,000 and $225,000

49. Refer to Figure 10-2. The actual cost which is higher than the upper control limit is
a. $220,000
b. $280,000
c. $265,000
d. $235,000

50. Refer to Figure 10-2. The actual cost which is lower than the lower control limit is
a. $220,000
b. $280,000
c. $265,000
d. $235,000

51. The Clark Company makes a single product and uses standard costing. Some data concerning this product for
the month of May follow:

The variable overhead rate variance for May was closest to:
A. $2,290 F
B. $2,290 U
C. $1,710 F
D. $1,710 U

52. The actual direct labor rate for May in dollars per hour was closest to:
A. $12.50
B. $12.00
C. $11.75
D. $11.50

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53. The total standard cost for direct labor for May was closest to:
A. $168,000
B. $180,000
C. $120,000
D. $161,000

54. The total standard cost for variable overhead for May was closest to:
A. $56,000
B. $40,000
C. $60,000
D. $50,000

55. The standard hours allowed to make one unit of finished product are:
A. 1.0
B. 1.2
C. 1.5
D. 2.0

56. The following data pertain to operations concerning the product for the last month:

What is the labor rate variance for the month?

A. $160 U
B. $160 F
C. $480 U
D. $480 F

57. What is the labor efficiency variance for the month?

A. $2,208 U
B. $2,272 U
C. $2,688 F
D. $2,688 U

58. The following standards for variable overhead have been established for a company that makes only one
product:

The following data pertain to operations for the last month:

What is the variable overhead rate variance for the month?

A. $4,194 F
B. $4,194 U
C. $2,670 F
D. $2,670 U

59 What is the variable overhead efficiency variance for the month?

A. $2,553 U
B. $6,747 U
C. $6,747 F
D. $6,864 U

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60. The Upton Company uses a standard costing system in which variable overhead is assigned to production on
the basis of standard direct labor-hours. Data for the month of February include the following:

 Variable overhead cost incurred: $48,700

 Total variable overhead variance: $300 F
 Standard hours allowed for actual production: 7,000
 Actual direct labor-hours worked: 6,840

The standard variable overhead rate per direct labor-hour is:

A. $6.91
B. $6.95
C. $7.00
D. $7.12

61. The variable overhead rate variance is:

A. $820 F
B. $820 U
C. $740 F
D. $740 U

62. The variable overhead efficiency variance is:

A. $430 U
B. $740 F
C. $1,120 F
D. $950 U

63. What is the variable overhead efficiency variance for the month?
A. $504 U
B. $1,120 U
C. $1,120 F
D. $1,144 F

Chapter 3 – The Behavior of Cost

64. Per-unit variable costs
a. can be misleading and lead to poor decisions.
b. increase as output increases.
c. decrease as output decreases.
d. remain constant within the relevant range.

65. If output increases

a. per-unit fixed cost will increase.
b. total variable costs will increase.
c. per-unit variable costs will increase.
d. per-unit variable costs will decrease.

66. If output decreases

a. total fixed costs will remain the same.
b. total variable costs will increase.
c. per-unit fixed costs will decrease.
d. All of these are correct.

67. If output increases by 50% and is still within the relevant range
a. total fixed costs will increase by 50%.
b. per-unit fixed cost will remain the same.
c. total variable costs will increase by 50%.
d. net income will increase by 50%.

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Figure 3-6.

68. Taran Company incurred the following costs for the months of January and February.

Type of Cost January February

Insurance $ 5,000 $ 5,000
Utilities 4,000 5,000
Depreciation 3,500 3,500
Materials 10,000 20,000

Refer to Figure 3-6. From the information above we can assume that
a. insurance and depreciation are fixed costs.
b. output decreased from January to February.
c. output stayed the same from January to February.
d. insurance is a mixed cost.

69. Refer to Figure 3-6. Assume that output was 5,000 units in January and 10,000 units in February, utility cost is
a mixed cost, and the fixed cost of utilities was $3,000. What was the variable rate per unit of output for utilities
cost?
a. $0.60
b. $0.40
c. $0.20
d. $0.30

70. Refer to Figure 3-6. If output was 5,000 units in January and 10,000 units in February we can assume that
a. utilities and materials are variable costs.
b. utilities, insurance, and depreciation are fixed costs.
c. insurance and depreciation are mixed costs.
d. materials are the only variable cost.

71. Ruskin Company had utilities cost of $95,000 at an output level of 30,000 units. The utilities cost was a mixed cost and the
portion was $50,000. What would the estimate of total utilities cost be at an output level of 40,000 units?
a. $65,000
b. $95,000
c. $110,000
d. $125,000

Figure 3-3.
72. Okafor Company manufactures skis. The management accountant wants to calculate the fixed and variable
costs associated with the leasing of machinery. Data for the past four months were collected.

Machine
Month Lease cost hours
April $21,000 550
May 16,500 420
June 19,000 510
July 22,230 570

Refer to Figure 3-3. Using the high-low method calculate the variable rate for the lease cost
a. $38.18
b. $38.20
c. $61.50
d. $37.25

73. Refer to Figure 3-3. Using the high-low method calculate the fixed cost of leasing
a. $482
b. $516
c. $420
d. $456

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74. Refer to Figure 3-3. What would Okafor Company's cost formula be to estimate the cost of leasing within the
relevant range?
a. total lease cost = $456 + ($38.20 × machine hours)
b. total lease cost = $516 + ($38.18 × machine hours)
c. total lease cost = $420 + ($37.25 × machine hours)
d. none of these are correct

75. Refer to Figure 3-3. What would the estimate of Okafor Company's total lease cost be at a level of 500
machine hours?
a. $19,606
b. $19,556
c. $16,464
d. $18,546

Figure 3-10.

76. The following cost formula was developed using the monthly data for an accounting firm.

Total cost = $87,100 + ($210 × number of tax returns)

Refer to Figure 3-10. The term $87,100

a. is the independent variable.
b. is the dependent variable.
c. is the intercept.
d. is the variable rate.

77. Refer to Figure 3-10. The term "number of tax returns"

a. is the independent variable.
b. is the dependent variable.
c. is the intercept.
d. is the variable rate.

78. Refer to Figure 3-10. The term $210

a. is the independent variable.
b. is the dependent variable.
c. is the intercept.
d. is the variable rate.

79. Refer to Figure 3-10. The term "total cost"

a. is the independent variable.
b. is the dependent variable.
c. is the intercept.
d. is the variable rate.

Chapter 4 (Cost Volume Profit Analysis)

80. If variable costs per unit decrease, sales volume at the break-even point will
a. decrease.
b. stay constant.
c. double.
d. increase.

81. Contribution margin ratio can be calculated in all of the following ways except
a. fixed costs / Contribution margin per unit.
b. 1 − Variable cost ratio.
c. contribution margin per unit / price.
d. total contribution margin / Total sales.
e. All of these are correct.

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82. Assume the following information:

Variable cost ratio 80%

Total fixed costs $60,000

What volume of sales dollars is needed to break even?

a. $75,000
b. $300,000
c. $48,000
d. $12,000

83. Which of the following equations is true?

a. Contribution margin = Sales revenue × Variable cost ratio
b. Contribution margin ratio = Contribution margin / Variable costs
c. Contribution margin = Fixed costs
d. Contribution margin ratio = 1 − Variable cost ratio

84. If the selling price per unit increases, the break-even point in units will
a. decrease.
b. increase.
c. remain the same.
d. remain the same; however, contribution per unit will decrease.

85. Patricia Company produces two products, X and Y, which account for 60% and 40%, respectively, of total sales
dollars. Contribution margin ratios are 50% for X and 25% for Y. Total fixed costs are $120,000. What is Patricia's
break-even point in sales dollars?
a. $300,000
b. $328,767
c. $342,856
d. $375,000

86. Clean Company sells its product for $80. In addition, it has a variable cost ratio of 60% and total fixed costs of
$8,000. What is the break-even point in sales dollars for Baker Company?
a. $4,800
b. $32,000
c. $20,000
d. $8,000

87. Sarah Smith, a sole proprietor, has the following projected figures for next year:

Selling price per unit $ 150.00

Contribution margin per unit 45.00
Total fixed costs 630,000

What is the contribution margin ratio?

a. 0.300
b. 1.429
c. 0.429
d. 3.333
e. 0.70

88. The ratio of fixed expenses to the contribution margin ratio is the
a. indifference point.
b. break-even point in units.
c. fixed cost ratio.
d. break-even point in sales.
e. sensitivity analysis.

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89. If the contribution margin per unit decreases, the break-even point in units
a. will increase.
b. will decrease.
c. will remain the same.
d. cannot be determined from the information given.

90. The income statement for Thomas Manufacturing Company for the current year is as follows:

Sales (10,000 units) $120,000

Variable expenses 72,000
Contribution margin $ 48,000
Fixed expenses 36,000
Operating income $ 12,000
What is the contribution margin per unit?
a. $7.20
b. $1.20
c. $4.80
d. $120,000

91. Dirth Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60% of sales
and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of
increasing its volume of sales. What is the contribution margin ratio when the selling price is reduced to $6 per
unit?
a. 25%
b. 40%
c. 75%
d. 60%

92. If the contribution margin ratio increases, the break-even point in sales dollars will
a. increase.
b. decrease.
c. remain the same.
d. double.

93. Dirth Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60% of sales
and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of
increasing its volume of sales. What is the sales dollars level required to break even at the old price of $7.50?
a. $75,000
b. $12,000
c. $18,000
d. $50,000

94. If fixed costs increase, the break-even point in units will

a. increase.
b. decrease.
c. remain the same.
d. remain the same; however, contribution per unit will decrease.

95. Total variable cost divided by price is

a. variable cost ratio.
b. revenue ratio.
c. contribution ratio.
d. sales ratio.
e. degree of operating leverage.

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96. Which statement is true about cost-volume profit (CVP) analysis?
a. CVP analysis is a powerful tool for planning and decision making.
b. CVP analysis allows managers to do sensitivity analysis by examining the impact of various prices or
cost levels on profit.
c. CVP analysis shows how revenues, expenses, and profits behave as volume changes.
d. CVP analysis can be used in both single-product and multi-product firms.
e. All of these statements are true.

97. Melody Company sells a product for $14, variable costs are $10 per unit, and total fixed costs are $5,040.
What is the break-even point in units?
a. 640
b. 1,260
c. 210
d. 360
e. 504

98. Melody Company sells a product for $14, variable costs are $10 per unit, and total fixed costs are $5,040.
What is the per unit contribution margin?
a. $14
b. $10
c. $24
d. $4

99. If the contribution margin ratio increases

a. the variable cost ratio decreases.
b. the break-even point increases.
c. fixed costs must have decreased.
d. price must have decreased.
e. more units must be sold to break even.

100. Stepford Company makes dolls. The price is $10 and the variable expense per unit is $6. What is the
contribution margin ratio?
a. 62.5%
b. 37.5%
c. 55%
d. 40%
e. 60%

101. The contribution margin is

a. the difference between sales and variable costs.
b. the difference between target income and operating income.
c. the difference between operating income and margin of safety.
d. equal to sales.
e. when total sales equals total costs.

Figure 4-1.
Foster Company makes power tools. The budgeted sales are $420,000, budgeted variable costs are $147,000, and
budgeted fixed costs are $227,500.

102. Refer to Figure 4-1. What is the budgeted operating income?

a. $273,000
b. $227,500
c. $45,500
d. $374,500
e. $567,000

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103. Refer to Figure 4-1. What is the variable cost ratio?
a. 54%
b. 35%
c. 89%
d. 19%
e. 50%

104. Refer to Figure 4-1. What is the break-even point in sales dollars?
a. $350,000
b. $420,000
c. $650,000
d. $780,000
e. $567,000

105. Refer to Figure 4-1. What is the contribution margin?

a. $90,000
b. $183,000
c. $36,000
d. $273,000
e. $374,500

106. Refer to Figure 4-1. What is the contribution margin ratio?

a. 35%
b. 65%
c. 54%
d. 89%
e. 50%

Figure 4-4.

107. Yerke Company makes jungle gyms and tree houses for children. For jungle gyms, the price is $120 and variable
expenses are $90 per unit. For tree houses, the price is $200 and variable expenses are $100.
Total fixed expenses are $253,750. Last year, Yerke sold 12,000 gyms and 4,000 tree houses.

Refer to Figure 4-4. Using the lowest whole numbers, what is the sales mix of gyms and tree houses?
a. 4:1
b. 3:1
c. 3:2
d. 2:3
e. 1:4

108. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to 8,000
units. What is the new (combined, overall or package) contribution margin ratio (rounded to two decimal places)?
a. 38%
b. 62%
c. 40%
d. 60%
e. 50%

109. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to 8,000
units. What is the number of jungle gyms sold at break-even?
a. 1,750
b. 668
c. 2,625
d. 1,002
e. 875

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110. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to 8,000
units. What is the number of tree houses sold at break-even?
a. 1,750
b. 668
c. 2,625
d. 1,002
e. 875

110. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to 8,000
units. What is the sales revenue at break-even?
a. $411,250
b. $253,700
c. $1,076,250
d. $665,000
e. $140,000

111. Biggers Company expects the following results for the next accounting period:

Sales $240,000
Variable costs 135,000
Fixed costs 40,000
Expected production and sales in units 3,000 units
The sales manager believes sales could be increased by 400 units if advertising expenditures were increased by
$10,000. If advertising expenditures are increased and sales increase by 400 units, the effect on operating income
will be a(n)

a. decrease of $4,000.
b. increase of $22,000.
c. increase of $4,000.
d. increase of $30,000.
e. cannot be determined from data given.

Figure 4-6.
112. Shorter Company had originally expected to earn operating income of $130,000 in the coming year. Shorter's degree of
operating leverage is 2.4. Recently, Shorter revised its plans and now expects to increase sales by 20% next year.

Refer to Figure 4-6. What is the percent change in operating income expected by Shorter in the coming year?
a. 8.33%
b. 48.0%
c. 20.0%
d. 54.17%
e. 30.0%

113. Refer to Figure 4-6. What is Shorter's revised expected operating income for the coming year?
a. $192,400
b. $156,000
c. $312,000
d. $130,000
e. $62,400

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 114. Problem Solving:

Neuman Company, which has only one product, has provided the following data concerning
its most recent month of operations:

The company produces the same number of units every month, although the sales in units
vary from month to month. The company's variable costs per unit and total fixed costs have
been constant from month to month.

Required:

a. Prepare a contribution format income statement for the month using variable costing.

b. Prepare an income statement for the month using absorption costing.

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