MANAGEMENT ADVISORY SERVICES
QUESTIONS AND ANSWERS
In the pharmaceutical or food industries, quality control inspections would most likely be
viewed as
a. non-value-added activities.
b. business-value-added activities.
c. value-added-activities.
d. process-efficiency activities.
ANS:
C
The term incremental cost refers to
a. the profit foregone by selecting one choice instead of another.
b. the additional cost of producing or selling another product or service.
c. a cost that continues to be incurred in the absence of activity.
d. a cost common to all choices in question and not clearly or feasibly
allocable to any of them.
ANS:
B
Irrelevant costs generally include
Sunk costs
a.
b.
c.
d.
yes
yes
no
yes
ANS:
Historical costs
yes
no
no
yes
Allocated costs
no
no
yes
yes
D
The potential rental value of space used for production activities
a. is a variable cost of production.
b. represents an opportunity cost of production.
c. is an unavoidable cost.
d. is a sunk cost of production.
ANS: B
If a firm's net income does not change as its volume changes, the firm('s)
a. must be in the service industry.
b. must have no fixed costs.
c. sales price must equal $0.
d. sales price must equal its variable costs.
ANS:
D
Cost-volume-profit analysis is a technique available to management to understand better the
interrelationships of several factors that affect a firm's profit. As with many such
techniques, the accountant oversimplifies the real world by making assumptions. Which
of the following is not a major assumption underlying CVP analysis?
a. All costs incurred by a firm can be separated into their fixed and variable
components.
b. The product selling price per unit is constant at all volume levels.
c. Operating efficiency and employee productivity are constant at all volume
levels.
d. For multi-product situations, the sales mix can vary at all volume levels.
ANS:
D
Consider the equation X = Sales - [(CM/Sales)
a. net income
b. fixed costs
c. contribution margin
d. variable costs
ANS:
(Sales)]. What is X?
D
The contribution margin ratio always increases when the
a. variable costs as a percentage of net sales increase.
b. variable costs as a percentage of net sales decrease.
c. break-even point increases.
d. break-even point decreases.
ANS:
B
In a multiple-product firm, the product that has the highest contribution margin per unit will
a. generate more profit for each $1 of sales than the other products.
b. have the highest contribution margin ratio.
c. generate the most profit for each unit sold.
d. have the lowest variable costs per unit.
ANS:
C
If a company's fixed costs were to increase, the effect on a profit-volume graph would be that
the
a. contribution margin line would shift upward parallel to the present line.
b. contribution margin line would shift downward parallel to the present line.
c. slope of the contribution margin line would be more pronounced (steeper).
d. slope of the contribution margin line would be less pronounced (flatter).
ANS:
B
If a cost is irrelevant to a decision, the cost could not be
a. a sunk cost.
b. a future cost.
c. a variable cost.
d. an incremental cost.
ANS:
D