V: Multiple Choice. For cach of the following questions, circle the letter of th

Question

V: Multiple Choice. For cach of the following questions, circle the letter of the best answer 1. Which of the following is true regarding the contribution margin ratio of a single product company? As fixed expenses decrease, the contribution margin ratio increases. The contribution margin ratio multiplied by the variable expense per unit equals the contribution margin per unit. If sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio by the dollar increase in sales The contribution margin ratio increases as the number of units sold increases. b. d. Ans: C 2-The margin of safety is equal to: a. Sales - Net operating income. b. Sales - (Variable expenses/Contribution margin). e. Sales - (Fixed expenses/Contribution margin ratio). d. Sales- (Variable expenses + Fixed expenses). Ans: C 3. A division of a company should be closed down if a. its variable and direct fixed costs are consistently higher than corporate fixed b. c. d. costs its segment margin is consistently lower than corporate fixed costs. its contribution margin is consistently lower than its segment margin. its revenues are consistently lower than its variable and direct fixed costs. Ans: D 4. Which of the following is not a benefit of budgeting? a. It reduces the need for tracking actual cost activity b. It sets benchmarks for evaluation performance. c. It coordinating activities between departments within the organization d. It formalizes a manager's planning efforts. Ans: A 5. Credit sales are $20,000 in May and $17,500 in June, 70% are collected in the month of sale and 30% collected in the following month. Total June collections are: a. $6,000 b. $12,250 c. $18,250 d. $19,250

Explanation / Answer

Question - 1 .....................Option - C is correct answer

Change in profit = change in contribution. Because, fixed cost remains constant.

Question - 2..................Option - C is correct answer

Margin of safety = Sales - Break even sales = Actual sales - Fixed cost / CM ratio

Question - 3 .................Option - D is correct answer

If a product cannot collect its variable cost + direct fixed cost, there is no sence in continuing that product.

Question - 4 ................Option - A is correct answer

Tracking of actual cost is needing only for finding the variances, but not for preparing budgets.

Question - 5..............Option - C is correct answer

70% of 17500 + 30 % of 20000 =  12250 + 6000 = 18250...................option - c

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