AFM 123 QUESTIONS WITH VERIFIED ANSWERS
Three responsibilities of management - Answers - Planning, controlling, evaluating
Lean business model - Answers - Business model in which company strives to eliminate
waste
Balanced scorecard - Answers - Company uses both financial and nonfinancial
measures in evaluating attributes of an organization's process
Kaizen - Answers - "Change for the better" / "continuous improvement"
Formula for gross profit - Answers - Revenue - COGS
Formula for operating profit - Answers - Revenue - COGS - Operating expenses
Mixed cost - Answers - Contains both fixed and variable component(s)
Product costs - Answers - Costs associated with the acquisition or production of goods
and products (e.g. manufacturing costs, factory costs)
Period costs - Answers - All costs that are not product costs (e.g. selling expenses,
admin expenses)
Prime cost - Answers - Cost directly associated with production of a product (e.g. direct
materials)
Conversion costs - Answers - Costs that are necessary to convert raw materials to a
finished product (e.g. direct labour, manufacturing overhead)
Formula for high-low method of determining variable cost - Answers - (Cost at highest
activity level - Cost at lowest activity level) / (Highest activity level - Lowest activity level)
Contribution margin ($) formula - Answers - Sales - Variable costs
Contribution margin ratio - Answers - Contribution margin / Sales
Break even point (units) formula - Answers - Total Fixed Costs / Contribution margin per
Unit
Break even point (dollars) formula - Answers - Fixed Costs / Contribution Margin Ratio
Margin of Safety ($) - Answers - Sales x Contribution Margin Ratio - Fixed Costs
Three responsibilities of management - Answers - Planning, controlling, evaluating
Lean business model - Answers - Business model in which company strives to eliminate
waste
Balanced scorecard - Answers - Company uses both financial and nonfinancial
measures in evaluating attributes of an organization's process
Kaizen - Answers - "Change for the better" / "continuous improvement"
Formula for gross profit - Answers - Revenue - COGS
Formula for operating profit - Answers - Revenue - COGS - Operating expenses
Mixed cost - Answers - Contains both fixed and variable component(s)
Product costs - Answers - Costs associated with the acquisition or production of goods
and products (e.g. manufacturing costs, factory costs)
Period costs - Answers - All costs that are not product costs (e.g. selling expenses,
admin expenses)
Prime cost - Answers - Cost directly associated with production of a product (e.g. direct
materials)
Conversion costs - Answers - Costs that are necessary to convert raw materials to a
finished product (e.g. direct labour, manufacturing overhead)
Formula for high-low method of determining variable cost - Answers - (Cost at highest
activity level - Cost at lowest activity level) / (Highest activity level - Lowest activity level)
Contribution margin ($) formula - Answers - Sales - Variable costs
Contribution margin ratio - Answers - Contribution margin / Sales
Break even point (units) formula - Answers - Total Fixed Costs / Contribution margin per
Unit
Break even point (dollars) formula - Answers - Fixed Costs / Contribution Margin Ratio
Margin of Safety ($) - Answers - Sales x Contribution Margin Ratio - Fixed Costs
