Unit 2: Marginal Costing and CVP Analysis - Practice Quiz

1 Marginal costing is a technique that considers which cost for decision-making?

2 Under marginal costing, fixed costs are generally treated as:

3 What is the main purpose of marginal costing?

4 Which equation represents the basic marginal costing relationship?

5 Which formula is used to calculate contribution?

6 Which formula shows the relationship between contribution, fixed cost, and profit?

7 Contribution is first used to cover:

8 A product sells for $50 and has a variable cost of $30. What is its contribution per unit?

9 If the contribution per unit increases while fixed costs remain unchanged, profit will generally:

10 The P/V ratio is calculated using which formula?

11 If sales are $100,000 and contribution is $40,000, what is the P/V ratio?

12 A higher P/V ratio indicates that a business earns:

13 The break-even point is the level of sales at which:

14 Which formula calculates the break-even point in units?

15 If fixed costs are $20,000 and contribution per unit is $10, what is the break-even point?

16 Margin of safety represents the difference between:

17 If actual sales are $80,000 and break-even sales are $50,000, what is the margin of safety?

18 For a short-term decision, which cost is usually relevant because it changes between alternatives?

19 In a make-or-buy decision, the company compares the cost of making a component with the cost of:

20 When a production resource is limited, products are commonly ranked according to contribution per:

21 A company is operating below its production capacity. Which cost information is most relevant when evaluating a one-time order at a lower selling price?

22 A product has sales of $240,000, variable costs of $150,000, and fixed costs of $60,000. Using the marginal costing equation, what is the profit?

23 A product sells for $80 per unit and has a variable cost of $50 per unit. If 4,000 units are sold, what is the total contribution?

24 A company sells two products. Product A has a contribution of $24 per unit and Product B has a contribution of $18 per unit. If both products use the same amount of a scarce resource per unit, which product should be prioritized?

25 A company earns a contribution of $75,000 on sales of $300,000. What is its P/V ratio?

26 A product has a P/V ratio of 40%. If sales increase by $50,000 and fixed costs remain unchanged, by how much will profit increase?

27 A company has fixed costs of $180,000 and a contribution of $45 per unit. What is the break-even point in units?

28 A business has fixed costs of $250,000 and a P/V ratio of 20%. What is its break-even sales value?

29 A product sells for $100 per unit, has a variable cost of $60 per unit, and total fixed costs are $320,000. What sales volume is required to earn a profit of $80,000?

30 A company's actual sales are $900,000 and its break-even sales are $675,000. What is the margin of safety as a percentage of actual sales?

31 A company sells 12,000 units, while its break-even volume is 9,000 units. The selling price is $50 per unit. What is the margin of safety in sales value?

32 A company has spare capacity and receives a special order for 2,000 units at $28 each. The variable cost is $20 per unit, and the order requires additional fixed costs of $5,000. What is the effect on profit if the order is accepted?

33 A product currently sells for $70 per unit and has a variable cost of $44 per unit. If a temporary price reduction of $5 per unit increases sales by 3,000 units, what is the additional contribution from these units?

34 A division is considering closing a segment that generates contribution of $90,000 and incurs avoidable fixed costs of $70,000. What would be the effect of closing the segment, assuming unavoidable costs remain unchanged?

35 A company needs 8,000 components. The variable cost to make each component is $16, and avoidable fixed costs total $24,000. A supplier offers the components for $18 each. Which decision minimizes relevant cost?

36 A company can make 5,000 units at a variable cost of $22 per unit. If it buys them, the price is $27 per unit, but $15,000 of fixed costs can be avoided. Which option is financially preferable?

37 A component requires 3 machine hours if made internally. The machine could instead earn $6 contribution per hour on another product. The variable manufacturing cost is $12 per component, and the purchase price is $28. Should the component be made or bought?

38 When production is limited by machine hours, which measure should primarily determine the preferred product mix?

39 Product A generates $30 contribution per unit and requires 3 labor hours. Product B generates $24 contribution per unit and requires 2 labor hours. If labor is scarce, which product should receive priority?

40 A company has 10,000 machine hours available. Product X requires 4 hours per unit and provides $80 contribution per unit. Product Y requires 2 hours per unit and provides $50 contribution per unit. Which product should be prioritized when demand is sufficient?

41 A company has no opening inventory. During the period, production exceeds sales by 5,000 units, and fixed manufacturing overhead is absorbed at per unit. There are no other differences between marginal and absorption costing. How will the reported profits compare?

42 A product sells for per unit and has a variable cost of per unit. Annual fixed costs are . If income tax is , how many units must be sold to earn an after-tax profit of ?

43 A firm normally sells 18,000 units at each and has capacity for 20,000 units. Variable manufacturing cost is per unit, and regular variable selling cost is per unit. A customer offers to buy 4,000 units at each. The order requires special packaging costing per unit but no regular selling cost. Regular sales displaced by the order cannot be recovered. What is the effect of accepting the order?

44 A company's sales and profits were and in Year 1, and and in Year 2. Selling prices, variable-cost ratios, and fixed costs remained unchanged. What are the P/V ratio and break-even sales?

45 Products A and B are sold in a constant unit mix of . Product A sells for with variable cost of , while Product B sells for with variable cost of . If total fixed costs are , what is the composite break-even volume?

46 Actual sales are , and the margin-of-safety ratio is . If the P/V ratio is , what are the fixed costs and current profit, respectively?

47 A segment reports revenue of , variable costs of , traceable fixed costs of , and allocated common fixed costs of . Only of the traceable fixed costs would be avoided if the segment were closed. What should management conclude, assuming no effect on other segments?

48 A company requires 10,000 components. Making them costs per unit in variable cost plus in fixed costs, of which is avoidable. A supplier offers the components for each. If purchasing releases capacity that can generate of contribution, which decision is financially preferable?

49 Product P contributes per unit and requires 2 machine hours; Product Q contributes per unit and requires 4 machine hours. A total of 12,000 machine hours is available, and maximum demand is 4,000 units of P and 3,000 units of Q. What product mix maximizes contribution?

50 Products X and Y contribute and per unit, respectively. Each X requires 2 machine hours and 1 labor hour; each Y requires 1 machine hour and 2 labor hours. Available capacity is 100 machine hours and 80 labor hours, with unlimited demand. Which mix maximizes total contribution?

51 Product A has a P/V ratio of and Product B has a P/V ratio of . Fixed costs are . If the sales-value mix changes from to in favor of A, what happens to break-even sales, assuming the individual P/V ratios remain constant?

52 A company has sales of , a P/V ratio of , and fixed costs of . Assuming linear cost and revenue behavior, what is the percentage decrease in profit if sales decline by ?

53 A product sells for per unit and has variable costs of per unit. Annual fixed costs are , including non-cash depreciation of . What are the accounting break-even point and cash break-even point?

54 A one-time order for 5,000 units would use idle capacity. Variable cost is per unit, and the order requires a special fixed setup cost of . It would also reduce regular sales by 1,000 units, each providing of contribution. What is the minimum acceptable price per special-order unit?

55 A company sells a product for per unit. Variable cost is per unit up to 20,000 units, but overtime raises variable cost to for every unit above 20,000. Fixed costs are . How many units are required to earn a profit of ?

56 Which statement best explains why marginal costing is generally more useful than absorption costing for a short-term decision involving idle capacity?

57 A company sells 10,000 units at each. Variable manufacturing cost is per unit, variable selling cost is per unit, and a sales commission of per unit will be replaced next year by a fixed salary of . If volume and price remain unchanged, by how much will annual profit change?

58 An exporter offers to buy 6,000 units at each. Variable production cost is per unit, and export packaging costs per unit. Only 2,000 units can be produced using idle capacity; the remainder would displace domestic sales at per unit that incur per unit of variable selling cost. What is the financial effect of accepting the export order?

59 Component A has a variable make cost of , a purchase price of , and requires 2 scarce machine hours. Component B has a variable make cost of , a purchase price of , and requires 1 scarce machine hour. Requirements are 4,000 units of A and 5,000 units of B, but only 8,000 machine hours are available. Fixed costs are unavoidable. Which purchasing plan minimizes total relevant cost?

60 Products R and S earn contributions of and per unit and require 3 and 5 kilograms of a scarce material, respectively. Demand is limited to 2,000 units of R and 1,500 units of S. A customer contract requires at least 600 units of S, and 9,000 kilograms are available. What mix maximizes contribution?