ANFM: Quiz 7: Cost Behaviour, Breakeven and Activity-Based Costing:
Question 1:
A variable cost is one that:
a) rises or falls in proportion to activity;
b) stays the same when activity rises or falls;
c) increases as time goes by;
d) is controlled though budgeting;
e) none of the above.
Question 2:
Bags Co sells luggage. They pay rent for their retail shop of $50,000 per year. This is an example of:
a) a variable cost;
b) a mixed cost;
c) an activity-based cost;
d) a fixed cost;
e) none of the above.
Question 3:
Bags Co sells luggage. The average retail price for each bag is $60, and the average cost is $40. The contribution margin is:
a) $60 per bag;
b) $40 per bag;
c) $20 per bag;
d) 50% of selling price;
e) none of the above.
Question 4:
Cullinary Co sells kitchen equipment, such as pans, cutlery etc. On average, the retail price of the products is $20, and each costs $15, so that the contribution margin is $5 per unit sold. Fixed costs total $20,000 per month. To break even they need to sell:
a) 20,000 units;
b) 10,000 units;
c) 5,000 units;
d) 4,000 units;
e) none of the above.
Question 5:
Cullinary Co sells kitchen equipment, such as pans, cutlery etc. On average, the retail price of the products is $20, and each costs $15, so that the contribution margin is $5 per unit sold. Fixed costs total $20,000 per month. To make a profit of $10,000 per month their sales should total:
a) $120,000;
b) $240,000;
c) $ 80,000;
d) $100,000;
e) none of the above;
Question 6:
Cullinary Co sells kitchen equipment, such as pans, cutlery etc. On average, the retail price of the products is $20, and each costs $15, so that the contribution margin is $5 per unit sold. Fixed costs total $20,000 per month. They are considering an ad campaign on local radio that would cost $5,000. For the ad campaign to be worthwhile it needs to generate the following number of additional sales units:
a) 1,000;
b) 2,000;
c) 5,000;
d) it would never be worthwhile;
e) none of the above.
Question 7:
Cullinary Co sells kitchen equipment, such as pans, cutlery etc. On average, the retail price of the products is $20, and each costs $15, so that the contribution margin is $5 per unit sold. Fixed costs total $20,000 per month. They are considering lowering the price from $20 to $18 by giving all the customers a 10% discount during the month of December. They expect this to increase sales volume from 6,000 units by 20% to 7,200 units. Fixed costs would remain unchanged. Is this a good idea from a financial perspective?
a) yes, the 10% drop in selling price is more than offset by the 20% increase in sales volume;
b) yes, the contribution margin will increase by $12,000;
c) no, the contribution margin will fall by $12,000;
d) no, the contribution margin will fall by $8,400
e) none of the above.
Question 8:
Camden Supply is a wholesale supplier of medical products. They have calculated the following overhead costs and cost drivers for 2002:
Budgeted cost Cost driver Units of cost driver
Sales staff visits $250,000 # visits 2,500 visits
Order fulfillment: $500,000 # orders 10,000 orders
Deliveries $750,000 Km 1,500,000
Units of product sold 3,000,000
Camden Supply uses a traditional cost allocation system to allocate its total overhead on the basis of numbers of product units. The allocation of cost to the Middlewich Hospital, which bought 500,000 units will be:
a) $100,000;
b) $150,000;
c) $200,000;
d) $250,000;
e) none of the above.
Question 9:
Camden Supply is a wholesale supplier of medical products. They have calculated the following overhead costs and cost drivers for 2002:
Budgeted cost Cost driver Units of cost driver
Sales staff visits $250,000 # visits 250 visits
Order fulfillment: $500,000 # orders 10,000 orders
Deliveries $750,000 Km 1,500,000
Units of product sold 3,000,000
Using activity based costing deliveries will be costed as:
a) $0.50 per unit;
b) $0.50 per km;
c) $2.00 per unit;
d) $0.25 per unit;
e) none of the above.
Question 10:
Camden Supply is a wholesale supplier of medical products. They have calculated the following overhead costs and cost drivers for 2002:
Budgeted cost Cost driver Units of cost driver
Sales staff visits $250,000 # visits 250 visits
Order fulfillment: $500,000 # orders 10,000 orders
Deliveries $750,000 Km 1,500,000
Units of product sold 3,000,000
In 2001 the Middlewich Hospital had 25 sales staff visits, placed 500 orders, had deliveries totaling 200,000 km, and had 500,000 products delivered. Using activity-based costing, the total cost allocated to the Middlewich Hospital would be:
a) $100,000;
b) $150,000;
c) $200,000;
d) $250,000;
e) none of the above.