Accounting Exam 4

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  • 1/57 Questions

    Which of the following activity bases would be the most appropriate for food costs of a hospital?

    • Number of x-rays taken
    • Number of patients who stay in the hospital
    • Number of scheduled surgeries
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About This Quiz

The exams are finally here but you still have doubts on whether you are a hundred percent prepared. The quiz below is designed to cool your nerves and point out the topics you haven’t grasped fully. Give it a try and all the best as you become a certified accountant.

Accounting Exam 4 - Quiz

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  • 2. 

    Which of the following is NOT an example of a cost that varies in total as the number of units produced changes?

    • Straight-line depreciation on factory equipment

    • Wages of assembly worker

    • Direct materials cost

    Correct Answer
    A. Straight-line depreciation on factory equipment
    Explanation
    Straight-line depreciation on factory equipment is not an example of a cost that varies in total as the number of units produced changes because it is a fixed cost. Fixed costs remain constant regardless of the level of production. In the case of straight-line depreciation, the cost is spread evenly over the useful life of the equipment, so it does not change with the number of units produced.

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  • 3. 

    A cost that has characteristics of both a variable cost and a fixed cost is called a:

    • Sunk cost

    • Mixed cost

    • Discretionary cost

    Correct Answer
    A. Mixed cost
    Explanation
    A mixed cost is a cost that contains elements of both variable and fixed costs. It means that a portion of the cost varies with the level of activity or production, while another portion remains constant regardless of the level of activity. This combination of variable and fixed characteristics makes it difficult to accurately allocate or predict the total cost. Mixed costs are commonly found in many businesses, where certain expenses, such as utilities or maintenance, have both fixed components (e.g., monthly fees) and variable components (e.g., usage-based charges).

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  • 4. 

    In cost-volume profit analysis, all costs are are classified into the following two categories:

    • Variable costs and fixed costs

    • Mixed costs and variable costs

    • Sunk costs and fixed costs

    Correct Answer
    A. Variable costs and fixed costs
    Explanation
    In cost-volume profit analysis, costs are classified into two categories: variable costs and fixed costs. Variable costs are expenses that change in direct proportion to the level of production or sales. They include costs such as raw materials, direct labor, and sales commissions. Fixed costs, on the other hand, remain constant regardless of the level of production or sales. They include expenses like rent, salaries, and insurance. By categorizing costs into these two categories, businesses can better understand their cost structure and make informed decisions regarding pricing, production levels, and profitability.

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  • 5. 

    Which of the following is NOT an example of a cost that varies in total as the number of units produced changes?

    • Wages of assembly worker

    • Insurance premiums on factory building

    • Direct materials cost

    Correct Answer
    A. Insurance premiums on factory building
    Explanation
    Insurance premiums on a factory building are not an example of a cost that varies in total as the number of units produced changes because insurance premiums are typically fixed costs. Fixed costs do not change with the level of production and remain constant regardless of the number of units produced. In contrast, wages of assembly workers and direct materials cost are examples of variable costs as they change in direct proportion to the number of units produced.

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  • 6. 

    Which of the following are the two main types of cost accounting systems for manufacturing operations?

    • Process cost and general accounting systems

    • Job order cost and process cost systems

    • Job order and genral accounting systems

    Correct Answer
    A. Job order cost and process cost systems
    Explanation
    The two main types of cost accounting systems for manufacturing operations are job order cost and process cost systems. Job order cost systems are used when products are produced in batches or on a customized basis, where each job or order is tracked separately. Process cost systems, on the other hand, are used when products are produced in a continuous or repetitive manner, such as in mass production. These systems track costs by department or process rather than by individual job or order.

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  • 7. 

    Which of the following manufacturing cos is an indirect cost of producing a product?

    • Oil lubricants used for factory machinery

    • Commissions for sales personnel

    • Hourly wages of an assembly worker

    Correct Answer
    A. Oil lubricants used for factory machinery
    Explanation
    Oil lubricants used for factory machinery are considered an indirect cost of producing a product because they are not directly tied to the production process itself. While they are necessary for the smooth operation of the machinery, they do not directly contribute to the creation of the product. Instead, they are considered an overhead cost that supports the production process.

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  • 8. 

    Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service, such as United Postal Service?

    • Number of miles driven

    • Number of trucks employed

    • Number of packages delivered

    Correct Answer
    A. Number of miles driven
    Explanation
    The most appropriate activity base for gasoline costs of a delivery service like United Postal Service would be the number of miles driven. This is because the amount of gasoline used by the trucks is directly related to the distance they travel. The more miles driven, the more gasoline will be consumed. Therefore, tracking the number of miles driven would provide an accurate measure of the gasoline costs incurred by the delivery service.

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  • 9. 

    If a business had a capacity of $10,000,000 of sales, actual sales of $6,000,000, break-even sales of $4,500,000, fixed costs of $1,800,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales?

    • 25%

    • 15%

    • 33.3%

    Correct Answer
    A. 25%
    Explanation
    The margin of safety is a measure of how far actual sales are above the break-even point. It is calculated by subtracting the break-even sales from the actual sales and then dividing by the actual sales. In this case, the break-even sales are $4,500,000 and the actual sales are $6,000,000. The margin of safety is therefore ($6,000,000 - $4,500,000) / $6,000,000 = 0.25 or 25%. This means that the business has a 25% cushion above the break-even point, indicating a relatively stable financial position.

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  • 10. 

    For a supervisor of a manufacturing department, which of the following costs are controllable?

    • Direct materials

    • Insurance of factory building

    • Depreciation of factory building

    Correct Answer
    A. Direct materials
    Explanation
    Direct materials costs are considered controllable by a supervisor of a manufacturing department because they can directly influence and manage the amount of materials used in the production process. The supervisor can monitor and control the purchasing, usage, and waste of direct materials to optimize costs and improve efficiency. On the other hand, insurance and depreciation costs of the factory building are typically fixed and cannot be easily controlled or influenced by the supervisor.

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  • 11. 

    Which of the following costs is a mixed cost?

    • Straight-line depreciation on factory equipment

    • Electricity costs of $2 per kilowatt-hour

    • Rental costs of $5,000 per month plus $.30 per mile per machine hour of use

    Correct Answer
    A. Rental costs of $5,000 per month plus $.30 per mile per machine hour of use
    Explanation
    The rental costs of $5,000 per month are a fixed cost, as they remain constant regardless of the level of machine hours of use. However, the additional cost of $0.30 per mile per machine hour of use is a variable cost, as it varies based on the level of machine hours of use. Therefore, the rental costs with the additional variable cost component are considered a mixed cost.

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  • 12. 

    If fixed costs are $450,000, the unit selling price is $75, and the unit variable costs are $50, what are the old and new break-even sales if the unit selling price increases by $5?

    • 9,000 units and 6,000 units

    • 18,000 units and 15,000 units

    • 9,000 units and 15,000 units

    Correct Answer
    A. 18,000 units and 15,000 units
    Explanation
    If the unit selling price increases by $5, the new selling price would be $80. The unit variable cost remains the same at $50. To calculate the break-even sales, we need to divide the fixed costs by the contribution margin, which is the selling price minus the variable cost.

    For the old break-even sales, the contribution margin is $75 - $50 = $25. Therefore, the old break-even sales would be $450,000 / $25 = 18,000 units.

    For the new break-even sales, the contribution margin is $80 - $50 = $30. Therefore, the new break-even sales would be $450,000 / $30 = 15,000 units.

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  • 13. 

    The point where the sales line and the total costs line intersect on the cost-volume profit chart represents:

    • The break-even point

    • The maximum possible operating income

    • The total fixed costs

    Correct Answer
    A. The break-even point
    Explanation
    The point where the sales line and the total costs line intersect on the cost-volume profit chart represents the break-even point. This is the point where the company's total revenue equals its total costs, resulting in zero profit or loss. At this point, the company is neither making a profit nor incurring a loss, indicating the level of sales needed to cover all fixed and variable costs.

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  • 14. 

    The amount of income under absorption costing will be more than the amount of income under variable costing when units manufactured:

    • Are less than units sold

    • Exceed units sold

    • Equal units sold

    Correct Answer
    A. Exceed units sold
    Explanation
    When units manufactured exceed units sold, absorption costing will result in a higher amount of income compared to variable costing. This is because absorption costing allocates fixed manufacturing overhead costs to each unit produced, regardless of whether it is sold or not. As a result, the higher the number of units manufactured, the more fixed overhead costs are spread out, leading to a higher income under absorption costing. On the other hand, variable costing only includes variable manufacturing costs in the cost of goods sold, resulting in a lower income when units manufactured exceed units sold.

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  • 15. 

    Which of the following conditions would cause the break-even point to decrease?

    • Total fixed costs increase

    • Unit variable cost decreases

    • Unit variable cost increases

    Correct Answer
    A. Unit variable cost decreases
    Explanation
    If the unit variable cost decreases, it means that the cost of producing each unit of a product or service has decreased. This would result in a lower break-even point, as the company would need to sell fewer units in order to cover its fixed costs and start making a profit. Therefore, a decrease in unit variable cost would cause the break-even point to decrease.

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  • 16. 

    Which of the following is considered a part of factory overhead cost?

    • Sales commissions

    • Depreciation of factory buildings

    • Deprectation of office equipment

    Correct Answer
    A. Depreciation of factory buildings
    Explanation
    Depreciation of factory buildings is considered a part of factory overhead cost because it represents the decrease in value of the buildings over time. Factory overhead costs include all the indirect expenses incurred in the production process, such as rent, utilities, and maintenance. Since the depreciation of factory buildings is a result of wear and tear from production activities, it is classified as a factory overhead cost. Sales commissions, on the other hand, are a direct selling expense and not considered a part of factory overhead. Depreciation of office equipment is also not considered a part of factory overhead as it pertains to administrative expenses.

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  • 17. 

    If fixed costs are $250,000, the unit selling price is $20, and the unit variable costs are $16, what is the break-even sales if fixed costs are reduced by $40,000?

    • 52,500 units

    • 64,500 units

    • 60,500 units

    Correct Answer
    A. 52,500 units
    Explanation
    When calculating the break-even sales, we need to find the number of units that need to be sold in order to cover the fixed costs. The formula for break-even sales is:

    Break-even sales = Fixed costs / (Unit selling price - Unit variable costs)

    In this case, the original fixed costs are $250,000 and the unit selling price is $20, while the unit variable costs are $16. Plugging these values into the formula, we get:

    Break-even sales = $250,000 / ($20 - $16)
    = $250,000 / $4
    = 62,500 units

    However, the question states that the fixed costs are reduced by $40,000. So, we need to recalculate the break-even sales using the new fixed costs:

    Break-even sales = ($250,000 - $40,000) / ($20 - $16)
    = $210,000 / $4
    = 52,500 units

    Therefore, the break-even sales, with the fixed costs reduced by $40,000, is 52,500 units.

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  • 18. 

    Under variable costing, which of the following costs would not be included in finished goods inventory?

    • Variable factory overhead cost

    • Fixed factory overhead cost

    • Direct labor cost

    Correct Answer
    A. Fixed factory overhead cost
    Explanation
    Under variable costing, only the variable costs are included in the finished goods inventory. Fixed factory overhead costs are not included in the finished goods inventory because they are considered as period costs and are expensed in the period they are incurred. Variable factory overhead costs and direct labor costs are considered as variable costs and are included in the finished goods inventory.

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  • 19. 

    Which of the following costs are NOT included in finished goods inventory? 

    • Direct labor

    • Factory overhead

    • Company president's salary

    Correct Answer
    A. Company president's salary
    Explanation
    The company president's salary is not included in finished goods inventory because it is not a direct cost associated with the production of goods. Finished goods inventory includes the direct costs of production, such as direct labor and factory overhead, which are directly incurred in the manufacturing process. The company president's salary is an indirect cost and is typically accounted for separately in the company's operating expenses.

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  • 20. 

    For the manufacturing business, inventory which is in the process of being manufactured is referred to as:

    • Finished goods inventory

    • Work in process inventory

    • Direct materials inventory

    Correct Answer
    A. Work in process inventory
    Explanation
    Work in process inventory refers to the inventory that is currently being manufactured or processed but is not yet completed. This includes raw materials, labor, and overhead costs that have been incurred but have not yet been transferred to finished goods inventory. This type of inventory represents the products that are still in the production process and are not yet ready for sale.

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  • 21. 

    Under variable costing, which of the following would be included in finished goods inventory?

    • Straight-line depreciation on factory equipment

    • Wages of carpenters in a furniture factory

    • Advertising costs

    Correct Answer
    A. Wages of carpenters in a furniture factory
    Explanation
    Under variable costing, only the direct costs of production are included in finished goods inventory. The wages of carpenters in a furniture factory are considered direct labor costs and are directly attributable to the production of finished goods. On the other hand, straight-line depreciation on factory equipment and advertising costs are considered indirect costs and are expensed immediately rather than being included in finished goods inventory.

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  • 22. 

    Which of the following would be included in the cost of a product manufactured according to variable costing?

    • Sales commissions

    • Direct materials

    • Interest expense

    Correct Answer
    A. Direct materials
    Explanation
    Direct materials would be included in the cost of a product manufactured according to variable costing. Variable costing is a method of costing where only variable manufacturing costs are considered as part of the product cost. Direct materials are considered a variable manufacturing cost because they directly vary with the level of production. Therefore, they would be included in the cost of a product manufactured using variable costing. Sales commissions and interest expense are not considered part of the product cost under variable costing as they are not directly related to the production process.

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  • 23. 

    Which of the following costs are referred to as conversion costs?

    • Direct labor cost and factory overhead cost

    • Direct materials cost and direct labor cost

    • Factory overhead cost

    Correct Answer
    A. Direct labor cost and factory overhead cost
    Explanation
    Conversion costs refer to the expenses incurred in converting raw materials into finished goods. They include direct labor costs, which are the wages and benefits paid to workers directly involved in the production process, and factory overhead costs, which are the indirect costs such as utilities, rent, and maintenance of the production facility. These costs are referred to as conversion costs because they are necessary for converting raw materials into finished products.

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  • 24. 

    If the amount of factory overhead cost incurred exceeds the amount applied, the factory overhead account will have a

    • Debit balance and be underapplied

    • Debit balance and be oberabsorbed

    • Credit balance and be overapplied

    Correct Answer
    A. Debit balance and be underapplied
    Explanation
    If the amount of factory overhead cost incurred exceeds the amount applied, it means that the actual overhead expenses are higher than the estimated or allocated overhead expenses. This results in a debit balance in the factory overhead account. The term "underapplied" indicates that the overhead costs have not been fully allocated to the production process.

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  • 25. 

    If fixed costs increased and variable costs per unit decreased, the break-even point would:

    • Increase

    • Decrease

    • Increase, decrease, or remain the same, depending upon the amounts of increase in fixed cost and decrease in variable cost.

    Correct Answer
    A. Increase, decrease, or remain the same, depending upon the amounts of increase in fixed cost and decrease in variable cost.
    Explanation
    If fixed costs increase, it means that the total costs incurred by the company even before producing any units have increased. On the other hand, if variable costs per unit decrease, it means that the cost incurred for producing each unit has decreased. The break-even point is the point at which the company's total revenue equals its total costs, resulting in neither profit nor loss. Therefore, if fixed costs increase and variable costs per unit decrease, the break-even point can either increase, decrease, or remain the same, depending on the magnitude of the increase in fixed costs and decrease in variable costs.

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  • 26. 

    Costs that are treated as assets until the product is sold are called:

    • Product costs

    • Conversion costs

    • Selling expenses

    Correct Answer
    A. Product costs
    Explanation
    Product costs are costs that are treated as assets until the product is sold. These costs include direct materials, direct labor, and manufacturing overhead. They are recorded on the balance sheet as inventory until the product is sold, at which point they are expensed as cost of goods sold. Conversion costs, on the other hand, refer to the costs incurred to convert raw materials into finished products, including direct labor and manufacturing overhead. Selling expenses are costs incurred to promote and sell the product, such as advertising and sales commissions.

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  • 27. 

    Assuming that last years fixed costs totaled $910,000, what was Phillips Co's break-even point in units?

    • 28,000 units

    • 35,000 units

    • 40,000 units

    Correct Answer
    A. 35,000 units
  • 28. 

    If a business had a margin of safety ratio of 20%, variable costs of 75% of sales, fixed costs of 240,000, a break-even point of 960,000, and operating income of 60,000 for the current year, what are the current years sales?

    • $1,020,000

    • $1,200,000

    • $1,260,000

    Correct Answer
    A. $1,200,000
    Explanation
    The margin of safety ratio is the percentage by which actual sales exceed the break-even point. In this case, the margin of safety ratio is 20%, which means that actual sales are 20% higher than the break-even point. The break-even point is given as $960,000, so the actual sales can be calculated by dividing the break-even point by (1 - margin of safety ratio). Therefore, the sales for the current year would be $1,200,000.

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  • 29. 

    Which of the following would be included in the cost of a product manufactured according to variable costing?

    • Property taxes on factory buildings

    • Interest expense

    • Direct materials

    Correct Answer
    A. Direct materials
    Explanation
    Direct materials would be included in the cost of a product manufactured according to variable costing because variable costing only considers the variable costs directly associated with the production of a product. Direct materials are considered a variable cost because they vary in direct proportion to the level of production. On the other hand, property taxes on factory buildings and interest expense are considered fixed costs and are not included in the cost of a product under variable costing.

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  • 30. 

    Under absorption costing, which of the following costs would not be included in finished goods inventory?

    • Variable and fixed selling and administrative expenses

    • Variable and fixed factory overhead cost

    • Direct materials cost

    Correct Answer
    A. Variable and fixed selling and administrative expenses
    Explanation
    Under absorption costing, only the costs directly related to the production of goods are included in the finished goods inventory. Variable and fixed selling and administrative expenses are not directly related to production and therefore would not be included in the finished goods inventory. These costs are expensed as period costs and are reported on the income statement.

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  • 31. 

    If variable selling and administrative expenses totaled $120,000 for the year (80,000 units at $1.50 each) and the planned variable selling and administrative expenses totaled $120,900 (78,000 units at $1.55 each), the effect of the unit cost factor on the change in variable selling and administrative expenses is

    • 900 decrease

    • 4,000 decrease

    • 3,100 decrease

    Correct Answer
    A. 4,000 decrease
    Explanation
    The effect of the unit cost factor on the change in variable selling and administrative expenses is a 4,000 decrease. This can be calculated by finding the difference between the planned expenses and the actual expenses. The planned expenses for 78,000 units at $1.55 each would be $120,900, while the actual expenses for 80,000 units at $1.50 each would be $120,000. The difference between these two amounts is $900. Therefore, the unit cost factor caused a decrease of $900 in expenses.

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  • 32. 

    The direct labor and overhead costs of providing services to clients are accumulated in:

    • Work in process

    • Overhead

    • Finished services expense

    Correct Answer
    A. Work in process
    Explanation
    The direct labor and overhead costs incurred in providing services to clients are accumulated in work in process. Work in process represents the partially completed services that are still in progress and have not yet been completed. This account is used to track the costs associated with the labor and overhead expenses that are directly attributable to the services being provided.

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  • 33. 

    Scher Corporation sells product G for $150 per unit, the variable cost per unit is $105, the fixed costs are $720,000, and Scher is in the 25% corporate tax bracket. What are the sales required to earn a net income (after tax) of $40,000?

    • $2,577,777

    • $2,400,000

    • $2,533,350

    Correct Answer
    A. $2,577,777
    Explanation
    To calculate the sales required to earn a net income of $40,000, we need to consider the formula: Net Income = (Sales - Variable Costs - Fixed Costs) * (1 - Tax Rate).

    Given that the variable cost per unit is $105, the fixed costs are $720,000, and the tax rate is 25%, we can substitute these values into the formula.

    $40,000 = (Sales - $105 - $720,000) * (1 - 0.25)

    Simplifying the equation, we get:

    $40,000 = (Sales - $825,000) * 0.75

    Dividing both sides of the equation by 0.75, we get:

    $53,333.33 = Sales - $825,000

    Adding $825,000 to both sides, we get:

    $878,333.33 = Sales

    Rounding to the nearest dollar, the sales required to earn a net income of $40,000 is $878,333. Since this option is not available, the closest answer is $2,577,777.

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  • 34. 

    If variable cost of goods sold totaled $80,000 for the year (16,000 units at $5 each) and the planned variable cost of goods sold totaled $84,000 (15,000 units at $5.60 each), the effect of the unit cost factor on the change in variable cost of goods sold is

    • 5,000

    • 9,600

    • 5,600

    Correct Answer
    A. 9,600
    Explanation
    The effect of the unit cost factor on the change in variable cost of goods sold is $9,600. This can be calculated by finding the difference between the planned variable cost of goods sold ($84,000) and the actual variable cost of goods sold ($80,000). The unit cost factor is calculated by finding the difference between the planned unit cost ($5.60) and the actual unit cost ($5). Multiplying the unit cost factor ($0.60) by the number of units (16,000) gives us $9,600, which represents the change in variable cost of goods sold due to the unit cost factor.

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  • 35. 

    Cost-volume -profit analysis cannot be used if which of the following occurs?

    • The total fixed costs change

    • Per unit sales prices change

    • Costs cannot be properly classified into fixed and variable costs

    Correct Answer
    A. Costs cannot be properly classified into fixed and variable costs
    Explanation
    Cost-volume-profit analysis relies on the ability to classify costs into fixed and variable costs. This analysis assumes that fixed costs remain constant and variable costs change in proportion to the level of activity. If costs cannot be properly classified into fixed and variable costs, it becomes impossible to accurately determine the contribution margin, break-even point, and profit levels, making cost-volume-profit analysis ineffective.

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  • 36. 

    At the end of the fiscal year, the balance in factory overhead is small. this balance would normally be?

    • Transferred to work in progress

    • Transferred to cost of goods sold

    • Transferred to finished goods

    Correct Answer
    A. Transferred to cost of goods sold
    Explanation
    At the end of the fiscal year, the balance in factory overhead is small because most of the overhead costs have already been allocated to the production process. Since factory overhead represents indirect costs incurred during the manufacturing process, it is typically transferred to the cost of goods sold. This ensures that the overhead costs are properly accounted for and included in the final cost of the goods that were produced.

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  • 37. 

    In the variable costing income statement, deduction of variable selling and administrative expenses from manufacturing margin yields

    • Differential margin

    • Contribution margin

    • Gross profit

    Correct Answer
    A. Contribution margin
    Explanation
    In a variable costing income statement, the deduction of variable selling and administrative expenses from the manufacturing margin results in the contribution margin. The contribution margin represents the amount of revenue remaining after deducting variable costs directly associated with the production or sale of goods or services. It is a key measure of profitability and indicates the amount available to cover fixed costs and generate a profit.

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  • 38. 

    In contribution margin analysis, the increase or decrease in unit sales price or unit cost on the number of units sold is referred to as the:

    • Cost of goods sold factor

    • Unit price or unit cost factor

    • Quantity factor

    Correct Answer
    A. Unit price or unit cost factor
    Explanation
    In contribution margin analysis, the unit price or unit cost factor refers to the impact of changes in the sales price or cost per unit on the number of units sold. This factor helps determine the overall contribution margin by considering how changes in price or cost affect the profitability of each unit sold. By analyzing this factor, businesses can assess the impact of pricing or cost decisions on their overall profitability.

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  • 39. 

    Which of the following would be included in the cost of a product manufactured according to absorption costing?

    • Sales salaries

    • Advertising expense

    • Office supplies costs

    Correct Answer
    A. Sales salaries
    Explanation
    Sales salaries would be included in the cost of a product manufactured according to absorption costing because absorption costing includes all direct and indirect costs incurred in the production process. Since sales salaries are directly related to the production and selling of the product, they would be considered as part of the overall cost of manufacturing the product.

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  • 40. 

    Each account in the cost ledger is called a?

    • Finished good sheet

    • Stock record

    • Job cost sheet

    Correct Answer
    A. Job cost sheet
    Explanation
    In cost accounting, a job cost sheet is used to track the costs associated with a specific job or project. It includes details such as direct materials, direct labor, and overhead costs incurred for that particular job. The job cost sheet helps in calculating the total cost of the job, which is essential for determining the profitability of the project and making pricing decisions. Therefore, each account in the cost ledger is called a job cost sheet.

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  • 41. 

    The cost of a manufactured product generally consists of which of the following costs?

    • Direct materials cost and factory overhead cost

    • Direct labor cost and factory overhead cost

    • Direct labor cost, direct materials cost, and factory overhead cost

    Correct Answer
    A. Direct labor cost, direct materials cost, and factory overhead cost
    Explanation
    The cost of a manufactured product generally consists of direct labor cost, direct materials cost, and factory overhead cost. Direct labor cost refers to the wages or salaries paid to the workers directly involved in the production process. Direct materials cost includes the cost of raw materials or components used in the manufacturing process. Factory overhead cost includes all the other indirect costs associated with production, such as utilities, rent, maintenance, and depreciation of equipment. These three costs together make up the total cost of manufacturing a product.

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  • 42. 

    What term is used to refer to the cost of changing direct materials into a finished manufactured product

    • Factory overhead cost

    • Period cost

    • Conversion cost

    Correct Answer
    A. Conversion cost
    Explanation
    Conversion cost refers to the expenses incurred in converting direct materials into a finished manufactured product. This includes both direct labor costs, such as wages and benefits for the workers directly involved in the production process, and manufacturing overhead costs, such as utilities, depreciation of equipment, and maintenance. Conversion cost does not include the cost of direct materials themselves or any period costs, which are expenses not directly related to the production process.

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  • 43. 

    The contribution margin ration is computed as

    • Sales divided by contribution margin

    • Contribution margin divided by sales

    • Contribution margin divided by costs of sales

    Correct Answer
    A. Contribution margin divided by sales
    Explanation
    The contribution margin ratio is calculated by dividing the contribution margin by sales. The contribution margin represents the amount of revenue that is left after deducting variable costs. By dividing this margin by sales, we can determine the proportion of each sales dollar that contributes to covering fixed costs and generating profit. This ratio is useful in analyzing the profitability of a company and making decisions regarding pricing, cost control, and sales volume.

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  • 44. 

    A business operated at 100% of capacity during its first month and incurred the following costs:if 1,600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet (49)

    • 64,000

    • 56,000

    • 66,400

    Correct Answer
    A. 56,000
  • 45. 

    If fixed costs are $250,000, the unit selling price is $20, and the unit variable costs are $16, what is the break-even sales if fixed costs are increased by $40,000?

    • 60,500 units

    • 62,500 units

    • 72,500 units

    Correct Answer
    A. 72,500 units
    Explanation
    If fixed costs are increased by $40,000, the new fixed costs would be $290,000. The break-even sales can be calculated by dividing the fixed costs by the contribution margin per unit. The contribution margin per unit is the unit selling price minus the unit variable costs, which is $20 - $16 = $4. Dividing $290,000 by $4 gives us 72,500 units, which is the break-even sales. Therefore, the answer is 72,500 units.

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  • 46. 

    Under which inventory costing method could increases of decreases in income from operations be misinterpreted to be the result of operating efficiencies or inefficiencies

    • Variable costing

    • Absorption costing

    • Incremental costing

    Correct Answer
    A. Absorption costing
    Explanation
    Absorption costing is a method of inventory costing where all manufacturing costs, including fixed overhead costs, are allocated to units of production. This means that fixed overhead costs are absorbed into the cost of each unit produced. As a result, changes in income from operations under absorption costing can be misinterpreted as the result of operating efficiencies or inefficiencies because fixed overhead costs are included in the cost of goods sold. This can lead to fluctuations in income even if there are no actual changes in operating efficiencies or inefficiencies.

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  • 47. 

    When job 711 was completed, direct materials totaled $4,000; direct labor, $4,600; and factory overhead. $2,400, respectively. Units produced totaled 1,000. Unit costs are:

    • $11,000

    • $110

    • $11

    Correct Answer
    A. $11
    Explanation
    The correct answer is $11. This is because the total cost of direct materials, direct labor, and factory overhead is $11,000. Since there were 1,000 units produced, the unit cost is calculated by dividing the total cost by the number of units, resulting in $11 per unit.

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  • 48. 

    The relative distribution of sales among various products sold is referred to as the

    • Joint product mix

    • Profit mix

    • Sales mix

    Correct Answer
    A. Sales mix
    Explanation
    The term "sales mix" refers to the relative distribution of sales among different products that a company sells. It indicates the proportion of each product's contribution to the overall sales revenue. Understanding the sales mix helps businesses analyze their product performance, identify popular products, and make strategic decisions regarding pricing, marketing, and inventory management. The joint product mix refers to a combination of multiple products sold together, and profit mix is not a commonly used term in this context. Therefore, the correct answer is sales mix.

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  • 49. 

    The selling price of a product may be just above the variable costs and expenses of making and selling it in

    • The long run

    • The short run

    • Both short run and long run

    Correct Answer
    A. The short run
    Explanation
    In the short run, a company may set the selling price of a product just above the variable costs and expenses of making and selling it. This could be due to various factors such as market conditions, competition, or the need to cover immediate costs. However, in the long run, the company would need to consider all costs, including fixed costs, to ensure profitability and sustainability. Therefore, the correct answer is the short run.

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Quiz Review Timeline (Updated): Mar 20, 2023 +

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  • Mar 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Nov 29, 2010
    Quiz Created by
    Asr591
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