ACCT 526 EXAM SCRIPT VERIFIED
QUESTIONS WITH ACCURATE ANSWERS
●● Alpha Company is evaluating a make-or-buy decision. Which of the
following is an example of an irrelevant cost with regard to a make-or-
buy decision?
Answer: cost of security guard who will guard the finished goods
inventory
●● fixed expenses that cannot be traced to individual segments or
products. They will continue to exist even if one segment or product is
eliminated.
Answer: common fixed expense
●● the difference between total sales and total variable costs on a total
basis, or price minus unit variable cost on a per-unit basis. Total
contribution margin is the amount left over from sales to contribute to
covering fixed costs and profit.
Answer: contribution margin
●● the cost behavior-based income statement. Costs are separated into
fixed and variable categories. First, total variable cost is subtracted from
sales to get the contribution margin. Next, total fixed expenses are
subtracted to get operating income (profit).
Answer: contribution margin income statement
,●● the ratio of total contribution margin to sales or of unit contribution
to price. Contribution margin ratio is also computed as 1 (100%) minus
the variable cost ratio. It represents the percentage of each sales dollar
available to contribute to fixed cost and profit.
Answer: contribution margin ratio
●● the company's relative mix of fixed to variable costs. It is useful in
determining operating leverage.
Answer: cost structure
●● estimates how changes in costs (both variable and fixed), sales
volume, and price affect profit.
Answer: cost volume profit analysis (CVP)
●● a graph showing the relationships among cost, volume (units sold),
and profit using a total cost line and a total revenue line. The intersection
of the total cost line with the total revenue line is the break-even point.
Answer: CVP graph
●● shows the degree to which fixed costs are used to obtain a higher
percent change in profits as sales change. DOL is equal to the total
contribution margin divided by operating income.
Answer: degree of operating leverage
, ●● fixed expenses that can be traced to an individual segment or
product. If that segment or product is eliminated, the direct fixed
expense is eliminated.
Answer: direct fixed expenses
●● the number of units sold or the amount of sales revenue earned above
the break-even point.
Answer: margin of safety
●● occurs when fixed costs are used to obtain higher change in profits as
sales change.
Answer: operating leverage
●● the relative combination of products sold by a company. Sales mix is
usually expressed in the lowest whole units. For example, a sales mix of
3:2 means that for every 3 units of Product A sold, 2 units of Product B
are sold.
Answer: sales mix
●● a ?what-if? technique used to see what impact a change in an
underlying variable has on the answer.
Answer: sensitivity analysis
QUESTIONS WITH ACCURATE ANSWERS
●● Alpha Company is evaluating a make-or-buy decision. Which of the
following is an example of an irrelevant cost with regard to a make-or-
buy decision?
Answer: cost of security guard who will guard the finished goods
inventory
●● fixed expenses that cannot be traced to individual segments or
products. They will continue to exist even if one segment or product is
eliminated.
Answer: common fixed expense
●● the difference between total sales and total variable costs on a total
basis, or price minus unit variable cost on a per-unit basis. Total
contribution margin is the amount left over from sales to contribute to
covering fixed costs and profit.
Answer: contribution margin
●● the cost behavior-based income statement. Costs are separated into
fixed and variable categories. First, total variable cost is subtracted from
sales to get the contribution margin. Next, total fixed expenses are
subtracted to get operating income (profit).
Answer: contribution margin income statement
,●● the ratio of total contribution margin to sales or of unit contribution
to price. Contribution margin ratio is also computed as 1 (100%) minus
the variable cost ratio. It represents the percentage of each sales dollar
available to contribute to fixed cost and profit.
Answer: contribution margin ratio
●● the company's relative mix of fixed to variable costs. It is useful in
determining operating leverage.
Answer: cost structure
●● estimates how changes in costs (both variable and fixed), sales
volume, and price affect profit.
Answer: cost volume profit analysis (CVP)
●● a graph showing the relationships among cost, volume (units sold),
and profit using a total cost line and a total revenue line. The intersection
of the total cost line with the total revenue line is the break-even point.
Answer: CVP graph
●● shows the degree to which fixed costs are used to obtain a higher
percent change in profits as sales change. DOL is equal to the total
contribution margin divided by operating income.
Answer: degree of operating leverage
, ●● fixed expenses that can be traced to an individual segment or
product. If that segment or product is eliminated, the direct fixed
expense is eliminated.
Answer: direct fixed expenses
●● the number of units sold or the amount of sales revenue earned above
the break-even point.
Answer: margin of safety
●● occurs when fixed costs are used to obtain higher change in profits as
sales change.
Answer: operating leverage
●● the relative combination of products sold by a company. Sales mix is
usually expressed in the lowest whole units. For example, a sales mix of
3:2 means that for every 3 units of Product A sold, 2 units of Product B
are sold.
Answer: sales mix
●● a ?what-if? technique used to see what impact a change in an
underlying variable has on the answer.
Answer: sensitivity analysis
