MULTIPLE CHOICE- THEORIES

1.The term contribution margin is best defined as the:

a.Difference between fixed costs and variable costs.

b.Difference between revenue and fixed costs.

c.Amount available to cover fixed costs and profit.

d.Amount available to cover variable costs.

2.Firms with high degree of operating leverage:

a.Will have a more significant shift in income as sales volume changes

b.Have lower fixed costs

c.Have low contribution margin ratios

d.Are less dependent on volume to add profits

3.At break -even point, fixed cost us always:

a.Less than the contribution margin

b.Equal to the contribution margin

c.More than the contribution margin

d.More than the variable cost

4.At the break-even point:

a.Net income will increase by the unit contribution margin for each additional item sold above break-even

b.The total contribution margin changes from negative to positive.

c.Fixed costs are greater than contribution margin.

d.The contribution margin ratio begins to increase.

5.With respect to fixed costs, C-V-P analysis assumes that fixed costs:

a.Per unit remains constant as volume changes.

b.In total remains constant from one period to the next

c.In total varies directly with volume

d.In total remains constant across changes in volume.

6.As projected net income increases the

a.Degree of operating leverage declines

b.Margin of safety stays constant

c.Break-even point goes down

d.Contribution margin ratio goes up.

7.The amount by which sales revenues could drop until a loss occurs is referred to as the

a.Sales volume variance

b.Margin of safety

c.Product contribution rate

d.Degree of operating leverage.

8.As variable cost increases but the selling price remains constant, the

a.Degree of operating leverage declines

b.Margin of safety stays constant

c.Breakeven point goes down

d.Contribution margin ratio goes up.

9.If a company raises its target peso profit, its

a.Break-even point rises.

b.Fixed costs increases.

c.Required total contribution margin increases

d.Selling price rises.

10.In CVP analysis, when the number of units changes, which one of the following will remain the same?

a.Total sales revenues

b.Total variable costs

c.Total fixed costs

d.Total contribution margin

11.As fixed cost for a firm rises, all other things constant, the break- even point will

a.Be unchanged

b.Not be affected by fixed costs

c.Increase

d.Decrease

12.Which of the following would not affect the break-even point?

a.Number of units sold.

b.Variable cost per unit

c.Total fixed costs

d.Sales price per unit

13.The primary difference between variable and absorption costing is the inclusion of :

a.Fixed selling expenses in product costs

b.Variable factory overhead in period costs

c.Variable selling expenses in product costs

d.Fixed factory overhead in product costs.

14.When absorption costing is used, all of the following costs are considered product costs except:

a.Direct labor

b.Variable overhead

c.Variable selling and administrative costs

d.Fixed overhead

15.When variable costing is used, fixed manufacturing overhead is recognized as an expense when the :

a.Cost is incurred

b.Product is completed'

c.Product is sold

d.Product is inventoried

16.When variable costing is used, the income statement is usually prepared using

a.A contribution margin format

b.An operational format

c.A functional format

d.All of the given choices

17.In variable costing system, product cost includes

a.Direct materials, direct labor, variable overhead

b.Direct materials, direct labor, fixed overhead

c.Direct labor, variable overhead, fixed overhead

d.Direct materials, variable overhead, fixed overhead

18.Variable costing net income is

a.Higher than absorption net income when more units are sold than produced

b.Lower than absorption net income when more units are produced than sold

c.The same as absorption net income when all units produced are sold

d.All of the given choices

19.Variable costing can be used for

a.External reporting

b.Internal reporting

c.Either external reporting or internal reporting

d.Neither external reporting nor internal reporting

20.Which of the following argument is against the use of direct (variable) costing?

a.Absorption costing overstates the balance sheet value of inventories.

b.Variable factory overhead is a period cost.

c.Fixed factory overhead is difficult to allocate properly.

d.Fixed factory overhead is necessary for the production of a product.

MULTIPLE CHOICE: SHORT PROBLEMS

1. Atlantic Company produces a single product. For the most recent year, the company's net operating income computed by the absorption costing method was P7,400, and its net operating income computed by the variable costing method was P10,100. The company's unit product cost was P17 under variable costing and P22 under absorption costing. If the ending inventory consisted of 1,460 units, the beginning inventory must have been:

a.920 unitsb.1,460 unitsc.2,000 unitsd.12,700 units

2. Ben Company produces a single product. Last year, the company's net operating income under absorption costing was P4,400 lower than variable costing. The company sold 8,000 units during the year, and its variable costs were P8 per unit, of which P3 was variable selling expense. Fixed manufacturing overhead was P1 per unit in the beginning inventory under absorption costing. How many units did the company produce during the year?

a.12,400 unitsb.3,600 unitsc.7,120 unitsd.7,450 units

3.Schrick Inc. manufactures a variety of products. Variable costing net operating income was P86,800 last year and ending inventory increased by 1,900 units. Fixed manufacturing overhead cost was P6 per unit. What was the absorption costing net operating income last year?

a.P86,800b.P75,400c.P98,200 d.P11,400

4. Tweet Inc. planned and actually manufactured 200,000 units of its single product, its first year of operations. Variable manufacturing costs were P30 per unit of product. Planned and actual fixed manufacturingcosts were P600,000 and selling and administrative costs totaled P400,000. Tweet sold 120,000 units of product at selling price of P40 per unit.

Tweet's operating income using absorption (full) costing is

a.P200,000b. P440,000c. P600,000d. P840,000

5. Using the information in No. 4, Tweet's operating income for the year using variable costing is

a. P200,000b. P440,000c. P800,000d. P600,000

6. The following is taken from Chatt Company's records for the current fiscal year ended November 30:

Direct material usedP300,000

Direct labor100,000

Variable factory overhead50,000

Fixed factory overhead80,000

Selling and admin. Costs - variable40,000

Selling and admin. Costs - fixed20,000

If Chatt Company uses variable costing, the inventoriable costs for the fiscal year are

a.P400,000b. P450,000c. P490,000d. P530,000

7. Using the information in No. 6, the inventoriable costs using absorption (full) costing are

a. P400,000b. P450,000c. P530,000d. P590,000