OVERVIEW OF MANAGERIAL ACCOUNTING

1. Management accounting information can be used for all of the following EXCEPT:
A) calculate the cost of a product or service.
B) evaluate the performance of a company.
C) project materials needs.
D) evaluate the market price of the stock.

2. Which of the following types of information are used in management accounting?

A) financial information B) nonfinancial information
C) information focused on the long term D) All of the above are correct.

3. Management accounting:
A) is both retrospective, providing feedback about past operations, and also
prospective, incorporating forecasts and estimates about future events.
B) is primarily oriented to external stakeholders.
C) must be consistent with rules formulated by the Financial Accounting Standards
Board (FASB).
D) provides information that is generally available only on a quarterly or annual basis.

4. Which of the following descriptors refer to management accounting information?

A) It is only retrospective, reporting and summarizing in financial terms the results of
past decisions and transactions.
B) It is driven by rules.
C) It is prepared for shareholders.
D) It is oriented to meeting the decision-making needs of employees and managers
inside the organisation.

5. Which of the following would be considered management accounting information?

A) Budgeted production for the year 2011.
B) Budgeted Balance Sheet.
C) Analysis of trend in stock prices.
D) Both budgeted production for the year of 2011, and the budgeted balance sheet.

6. Management accounting information includes all of the following EXCEPT:

A) tabulated results of customer satisfaction surveys.
B) the cost of producing a product.
C) the percentage of units produced that is defective.
D) market price of the stock.

7. Management accounting reports might include information about:

A) customer complaints.
B) net income for the year on budgeted income statement.
C) total assets on budgeted balance sheet.
D) All of the above are correct.

8. The person MOST likely to use management accounting information is a(n):

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 A) banker evaluating a credit application.
B) shareholder evaluating a stock investment.
C) governmental taxing authority.
D) assembly department supervisor.

9. Which of the following is NOT a function of a management accounting system?

A) strategic development B) financial reporting
C) control D) product costing

10. Financial accounting:

A) focuses on the future and includes activities such as preparing next year's operating
budget.
B) does not need to comply with GAAP (generally accepted accounting principles).
C) is primarily oriented to external stakeholders, such as investors, creditors, regulators
and tax authorities.
D) is prepared for the use of department heads and other employees.

11. The person MOST likely to use ONLY financial accounting information is a:
A) factory shift supervisor. B) vice president of operations.
C) current shareholder. D) department manager.

12. Historically, management accounting innovations have been developed by:

A) the International Accounting Standards Board.
B) the Cost Accounting Standards Board.
C) Academic accountants.
D) Managers.

13. In general, it was not until the 1970s that management accounting systems:
A) were improved because of demands by the FASB and the SEC.
B) stagnated and proved inadequate.
C) started to develop innovations in costing and performance-measurement systems due
to intense pressure from overseas competitors.
D) started to address the decision-making needs of managers.

14. Financial accounting information:

A) provides a signal that something is wrong.
B) identifies what is wrong.
C) explains what is wrong.
D) simply summarises information but gives no indication that anything is wrong.

15. Management accounting information is BEST described as:

A) providing a signal that something is wrong.
B) identifying and helping to explain what is wrong.
C) simply summarizing information, but giving no indication that anything is wrong.
D) measuring overall organisational performance.

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 COST TERMS, CONCEPTS, AND CLASSIFICATIONS

1. Indirect labour is a part of:

A) Prime cost. B) Conversion cost.
C) Period cost. D) Nonmanufacturing cost.

2. The cost of lubricants used to grease a production machine in a manufacturing company is

an example of a(n):
A) period cost B) direct material cost.
C) indirect material cost. D) none of the above.

3. The salary paid to the president of Tan Thanh Company would be classified on the income
statement as a(n):
A) administrative expense. B) direct labour cost.
C) manufacturing overhead cost. D) selling expense.

4. Direct labour cost is a part of:

Conversion cost Prime cost
A) No No
B) No Yes
C) Yes Yes
D) Yes No

5. Direct material cost is a:

Conversion cost Prime cost
A) No No
B) No Yes
C) Yes Yes
D) Yes No

6. Prime cost and conversion cost share what common element of total cost?
A) Direct materials. B) Direct labour.
C) Variable overhead. D) Fixed overhead.

7. Prime cost consists of:

A) direct labour and manufacturing overhead.
B) direct materials and manufacturing overhead.
C) direct materials and direct labour.
D) direct materials, direct labour and manufacturing overhead.

8. Wages paid to a timekeeper in a factory are a:

Prime cost Conversion cost
A) Yes No
B) Yes Yes
C) No No
D) No Yes

9. Depreciation on a personal computer used in the marketing department of a manufacturing

firm would be classified as:

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 A) a product cost that is fixed with respect to the company's output.
B) a period cost that is fixed with respect to the company's output.
C) a product cost that is variable with respect to the company's output.
D) a period cost that is variable with respect to the company's output.

10. The nursing station on the fourth floor of Hanh Phuc Hospital is responsible for the care of
patients who have undergone orthopaedic surgery. The costs of drugs administered by the
nursing station to patients would be classified as:
A) direct costs of the patients. B) indirect costs of the patients.
C) overhead costs of the nursing station. D) period costs of the hospital.

11. All of the following would be classified as product costs except:

A) property taxes on production equipment. B) insurance on factory machinery.
C) salaries of the advertising staff. D) wages of machine operators.

12. Fixed costs expressed on a per unit basis:

A) will increase with increases in activity.
B) will decrease with increases in activity.
C) are not affected by activity.
D) should be ignored in making decisions since they cannot change.

13. The costs of staffing and operating the accounting department at Central Hospital would be
considered by the Department of Surgery to be:
A) direct costs. B) indirect costs.
C) incremental costs. D) opportunity costs.

14. A cost incurred in the past that is not relevant to any current decision is classified as a(n):
A) period cost. B) opportunity cost.
C) sunk cost. D) differential cost.

15. Differential costs can:

A) only be fixed costs. B) only be variable costs.
C) be either fixed or variable. D) be incremental but not decremental.

16. Hoang Minh decided to leave his former job where he earned $12 per hour to go to a new
job where he will earn $13 per hour. In the decision process, the former wage of $12 per hour
would be classified as a(n):
A) sunk cost. B) direct cost.
C) fixed cost. D) opportunity cost.

17. The term that refers to costs incurred in the past that are not relevant to a decision is:
A) marginal cost. B) indirect cost.
C) period cost. D) sunk cost.

18. The following costs were incurred in January: direct materials $33,000, direct labour
$28,000, manufacturing overhead $69,000, selling expenses $16,000, administrative expenses
$21,000. Conversion costs during the month totalled:
A) $97,000 B) $167,000
C) $102,000 D) $61,000

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19. The following costs were incurred in January: direct materials $39,000, direct labour
$26,000, manufacturing overhead $21,000, selling expenses $14,000, administrative expenses
$27,000. Prime costs during the month totalled:
A) $86,000 B) $65,000
C) $47,000 D) $127,000

20. Phu Phuong Company's manufacturing overhead is 20% of its total conversion costs. If
direct labour is $45,000 and if direct materials are $53,000, the manufacturing overhead is:
A) $11,250 B) $13,250
C) $180,000 D) $24,500

21. During the month of January, direct labour cost totalled $17,000 and direct labour cost was
60% of prime cost. If total manufacturing costs during January were $82,000, the
manufacturing overhead was:
A) $11,333 B) $53,667
C) $28,333 D) $65,000

22. Minh Thanh Company's direct labour is 40 percent of its conversion cost. If the
manufacturing overhead cost for the last period was $60,000 and the direct materials cost was
$30,000, the direct labour cost was:
A) $90,000 B) $20,000
C) $60,000 D) $40,000

23. A manufacturing company prepays its insurance coverage for a three-year period. The
premium for the three years is $3,000 and is paid at the beginning of the first year. Three-
fourths of the premium applies to factory operations and one-fourth applies to selling and
administrative activities. What amounts should be considered product and period costs
respectively for the first year of coverage?
Product Period
A) $1,000 $0
B) $250 $750
C) $2,250 $750
D) $750 $250

24. As the level of activity increases, how will a mixed cost in total and per unit behave?
In Total Per Unit
A) Increase Decrease
B) Increase Increase
C) Increase No effect
D) Decrease Increase
E) Decrease No effect

25. Since Pizza Inn is open 24 hours a day, its pizza oven is constantly on and is, therefore,
always using natural gas. However, when there is no pizza in the oven, the oven automatically
lowers its flame and reduces its natural gas usage by 70%. The cost of natural gas would best
be described as a:
A) fixed cost. B) mixed cost.
C) step-variable cost. D) true variable cost.

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26. When the activity level is expected to decline within the relevant range, what effects would
be anticipated with respect to each of the following?
Fixed costs per unit Variable costs per unit
A) Increase Increase
B) Increase No change
C) No change No change
D) No change Increase

27. Within the relevant range, variable costs can be expected to:
A) vary in total in direct proportion to changes in the activity level.
B) remain constant in total as the activity level changes.
C) increase on a per unit basis as the activity level increases.
D) increase on a per unit basis as the activity level decreases.
E) none of these.

28. Which of the following is not correct when referring to fixed costs?
A) Whether a cost is committed or discretionary will depend in large part on
management's strategy.
B) Discretionary fixed costs arise from annual decisions by management.
C) Fixed costs remain constant in total throughout the relevant range.
D) Committed fixed costs can often be reduced to zero for short periods of time without
seriously impairing the long-run goals of the company.
E) The trend in companies today is toward greater fixed costs relative to variable costs.

29. Which of the following statements is true when referring to fixed costs?
A) Committed fixed costs arise from the annual decisions by management.
B) As volume increases, unit fixed cost and total fixed cost will change.
C) Fixed costs increase in total throughout the relevant range.
D) Discretionary fixed costs can often be reduced to zero for short periods of time
without seriously impairing the long-run goals of the company.

30. For the past 8 months, Long Hai Corporation has experienced a steady increase in its cost
per unit even though total costs have remained stable. This cost per unit increase may be due
to _____________ costs because the level of activity at Long Hai is _______________.
A) fixed, decreasing B) fixed, increasing
C) variable, decreasing D) variable, increasing

31. Discretionary fixed costs:

A) cannot be changed since they are fixed.
B) have a long-term planning horizon, generally encompassing many years.
C) are made up of facilities, equipment, and basic costs.
D) responses b and c are both correct.
E) none of these above.

32. An example of a committed fixed cost is:

A) management training seminars. B) a long-term equipment lease.
C) research and development. D) advertising.

33. Which of the following would usually be considered a committed fixed cost for a retail
sales corporation?

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 A) lease payments made on its store buildings
B) the cost of the Caribbean trip given to the employee of the year
C) the cost of running an annual leadership seminar for managers
D) both a and c above

34. Which of the following would usually be considered a discretionary fixed cost for a
financial planning company?
A) the cost of the annual employee picnic
B) property taxes on its corporate office building
C) the cost of internships for selected college seniors
D) both a and c above

35. Which of the following is unlikely to be classified as a fixed cost with respect to the number
of units produced and sold?
A) Property taxes on a headquarters building.
B) Legal department salaries.
C) Cost of leasing the company's mainframe computer.
D) Production supplies.

36. The following data have been collected for four different cost items.
Cost Item Cost at 100 units Cost at 140 units
W $8,000 $10,560
X $5,000 $5,000
Y $6,500 $9,100
Z $6,700 $8,580
Which of the following classifications of these cost items by cost behaviour is correct?
Cost W Cost X Cost Y Cost Z
A) variable fixed mixed variable
B) mixed fixed variable mixed
C) variable fixed variable variable
D) mixed fixed mixed mixed

37. Contribution margin is:

A) Sales less cost of goods sold.
B) Sales less variable production, variable selling, and variable administrative
expenses.
C) Sales less variable production expense.
D) Sales less all variable and fixed expenses.
E) none of the above.

38. The contribution approach to income statement preparation:

A) organizes costs according to the functions of production, administration, and sales.
B) is used for external reporting.
C) organizes costs according to their variable and fixed cost behaviour.
D) both b and c are true.
E) both a and b are true

39. Tan Hoang Phong Corporation is a wholesaler that sells a single product. Management has
provided the following cost data for two levels of monthly sales volume. The company sells
the product for $133.60 per unit.

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 Sales volume (units) .............................................. 4,000 5,000
Cost of sales .......................................................... $383,600 $479,500
Selling, general, and administrative costs ............. $124,400 $136,000
The best estimate of the total contribution margin when 4,300 units are sold is:
A) $112,230 B) $162,110
C) $28,380 D) $45,150

40. Shipping costs at Viet Duc Company are a mixture of variable and fixed components. The
company shipped 8,000 tons of coal for $400,000 in shipping costs in February and 10,000
tons for $499,000 in March. Assuming that this activity is within the relevant range, expected
shipping costs for 11,000 tons would be:
A) $544,500 B) $548,500
C) $422,222 D) $554,000

41. Quang Minh Corporation has provided the following production and average cost data for
two levels of monthly production volume. The company produces a single product.
Production volume ......................... 4,000 units 5,000 units
Direct materials .............................. $99.20 per unit $99.20 per unit
Direct labour .................................... $45.50 per unit $45.50 per unit
Manufacturing overhead ................ $94.00 per unit $77.60 per unit
The best estimate of the total monthly fixed manufacturing cost is:
A) $388,000 B) $954,800
C) $376,000 D) $328,000

42. Phu Hai Corporation has provided the following production and average cost data for two
levels of monthly production volume. The company produces a single product.
Production volume .......................... 1,000 units 3,000 units
Direct materials ............................... $30.90 per unit $30.90 per unit
Direct labour ................................... $40.20 per unit $40.20 per unit
Manufacturing overhead ................. $64.60 per unit $33.80 per unit
The best estimate of the total variable manufacturing cost per unit is:
A) $89.50 B) $18.40
C) $71.10 D) $30.90

43. Quang Thai Corporation has provided the following production and average cost data for
two levels of monthly production volume. The company produces a single product.
Production volume ............................. 4,000 units 5,000 units
Direct materials .................................. $85.80 per unit $85.80 per unit
Direct labour ........................................$56.10 per unit $56.10 per unit
Manufacturing overhead ..................... $73.60 per unit $62.10 per unit
The best estimate of the total cost to manufacture 4,300 units is closest to:
A) $877,200 B) $909,400
C) $901,925 D) $926,650

44. Given the cost formula Y = $12,500 + $5.00X, total cost for an activity level of 4,000 units
would be:
A) $20,000 B) $12,500
C) $16,000 D) $32,500

45. The following data pertains to activity and maintenance costs for two recent years:

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 Year 2 Year 1
Activity level in units .................... 11,125 6,000
Maintenance cost ........................... $6,250 $4,200
If the high-low method is used to separate fixed and variable components of the cost, which of
the following statements is correct?
A) The variable cost is $0.70 per unit of activity
B) The fixed cost is $2,050
C) The variable cost is $2.50 per unit of activity
D) The fixed cost is $1,800

46. The following data relate to two levels of activity at an out-patient clinic in a hospital:
Number of patient-visits ............. 4,500 5,750
General overhead ........................ $269,750 $289,125
The best estimate of the variable general overhead cost per patient-visit is closest to:
A) $15.50 B) $44.44
C) $59.94 D) $50.28

47. At a sales level of $365,000, Hoang Phong Company's gross margin is $20,000 less than
its contribution margin, its net operating income is $70,000, and its selling and administrative
expenses total $130,000 At this sales level, its contribution margin would be:
A) $295,000 B) $180,000
C) $220,000 D) $200,000

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 COST-VOLUME-PROFIT RELATIONSHIPS

1. Which of the following is correct? The break-even point occurs on the CVP graph where:
A) total profit equals total expenses.
B) total profit equals total fixed expenses.
C) total contribution margin equals total fixed expenses.
D) total variable expenses equal total contribution margin.

2. Unilever (Vietnam) manufactures and sells a single product with a positive contribution
margin. If the selling price and the variable expense per unit both increase 5% and fixed
expenses do not change, what is the effect on the contribution margin per unit and the
contribution margin ratio?
Contribution Contribution
margin per unit margin ratio
A) No change No change
B) Increase Increase
C) Increase No change
D) Increase Decrease

3. Viet Anh Company is a single product firm. Viet Anh Company is predicting that a price
increase next year will not cause unit sales to decrease. What effect would this price increase
have on the following items for next year?
Contribution Break-even
Margin Ratio Point
A) Increase Decrease
B) Decrease Decrease
C) Increase No effect
D) Decrease No effect

4. The contribution margin ratio is equal to:

A) Total manufacturing expenses/Sales. B) (Sales - Variable expenses)/Sales.
C) 1 - (Gross Margin/Sales). D) 1 - (Contribution Margin/Sales).

5. The contribution margin ratio always increases when the:

A) break-even point increases.
B) break-even point decreases.
C) variable expenses as a percentage of net sales decrease.
D) variable expenses as a percentage of net sales increase.

6. In the middle of the year, the price of An Phuoc Corporation's major raw material increased
by 8%. How would this increase affect the company's break-even point and margin of safety?
Break-even point Margin of safety
A) Increase Increase
B) Increase Decrease
C) Decrease Decrease
D) Decrease Increase

7. A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase
in its selling price per unit will:

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 A) decrease the degree of operating leverage.
B) decrease the contribution margin.
C) have no effect on the break-even volume.
D) have no effect on the contribution margin ratio.

8. The break-even point in unit sales is found by dividing total fixed expenses by:
A) the contribution margin ratio. B) the variable expenses per unit.
C) the sales price per unit. D) the contribution margin per unit.

9. Which of the following would not affect the break-even point?

A) number of units sold B) variable expense per unit
C) total fixed expenses D) selling price per unit

10. If a company increases its selling price by $2 per unit due to an increase in its variable
labour cost of $2 per unit, the break-even point in units will:
A) decrease. B) increase.
C) not change. D) change but direction cannot be determined.

11. To obtain the dollar sales volume necessary to attain a given target profit, which of the
following formulas should be used?
A) (Fixed expenses + Target net profit)/Total contribution margin
B) (Fixed expenses + Target net profit)/Contribution margin ratio
C) Fixed expenses/Contribution margin per unit
D) Target net profit/Contribution margin ratio

12. Tan Phong Corporation has a degree of operating leverage of 8. This means that a 1%
change in sales dollars at Salinas will generate an 8% change in:
A) variable expenses. B) fixed expenses.
C) contribution margin. D) net operating income.

13. In calculating the break-even point for a multi-product company, which of the following
assumptions are commonly made?
I. Selling prices are constant.
II. Variable expenses are constant per unit.
III. The sales mix is constant.
A) I and II B) I and III
C) II and III D) I, II, and III

14. The following information relates to the break-even point at Truong Hai Corporation:
Sales dollars ...................... $120,000
Total fixed expenses ......... $30,000
If Truong Hai wants to generate net operating income of $12,000, what will its sales dollars
have to be?
A) $132,000 B) $136,000
C) $168,000 D) $176,000

15. The following information relates to Han Minh Corporation:

Sales at the break-even point ......... $312,500
Total fixed expenses ...................... $250,000
Net operating income .................... $150,000

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What is Han Minh's margin of safety?
A) $62,500 B) $187,500
C) $100,000 D) $212,500

16. The “McDonald” hot dog stand expects the following operating results for next year:
Sales ............................................... $280,000
Net operating income .................... $21,000
Contribution margin ratio .............. 70%
What is McDonald's break-even point next year in sales dollars?
A) $120,000 B) $181,300
C) $196,000 D) $250,000

17. The following information relates to Hai Hoang Corporation for last year:
Sales ........................................................... $500,000
Net operating income ................................ $25,000
Degree of operating leverage .................... 5
Sales at Hai Hoang are expected to be $600,000 next year. Assuming no change in cost
structure, this means that net operating income for next year should be:
A) $30,000 B) $45,000
C) $50,000 D) $125,000

18. The following information pertains to Minh Son Co.'s cost-volume-profit relationships:
Breakeven point in units sold ...................... 1,000
Variable expenses per unit .......................... $500
Total fixed expenses .................................... $150,000
How much will be contributed to net operating income by the 1,001st unit sold?
A) $650 B) $500
C) $150 D) $0

19. Phuoc Dat Corporation expected to sell 150,000 games during the month of November.
The following budgeted data are based on that level of sales:
Revenue (150,000 games) ..................................... $2,400,000
Variable expenses .................................................. 1,425,000
Fixed manufacturing overhead expenses .............. 250,000
Fixed selling & administrative expenses ............... 500,000
Net operating income ............................................ 225,000
Phuoc Dat' actual sales during November were 180,000 games. What should the actual net
operating income during November have been?
A) $450,000 B) $270,000
C) $420,000 D) $510,000

20. Thanh Thai Company produces a product which sells for $40. Variable manufacturing costs
are $18 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity,
and fixed selling and administrative costs are $4 per unit. A selling commission of 15% of the
selling price is paid on each unit sold. The contribution margin per unit is:
A) $7 B) $17
C) $22 D) $16

21. Phu Quang Company is a medium-sized manufacturer of lamps. During the year a new line
called “A” was made available to Phu Quang's customers. The break-even point for sales of A

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is $200,000 with a contribution margin ratio of 40%. Assuming that the profit for the A line
during the year amounted to $100,000, total sales during the year would have amounted to:
A) $300,000 B) $420,000
C) $450,000 D) $475,000

22. Thanh Cong Company's sales are $600,000, its fixed expenses are $150,000, and its
variable expenses are 60% of sales. Based on this information, the margin of safety is:
A) $90,000 B) $190,000
C) $225,000 D) $240,000

23. Variable expenses for Pham Gia Company are 40% of sales. What are sales at the breakeven
point, assuming that fixed expenses total $150,000 per year:
A) $250,000 B) $375,000
C) $600,000 D) $150,000

24. Hoang Minh Company sells a single product at a selling price of $15.00 per unit. Last year,
the company's sales revenue was $225,000 and its net operating income was $18,000. If fixed
expenses totalled $72,000 for the year, the break-even point in unit sales was
A) 15,000 B) 9,900
C) 14,100 D) 12,000

25. Thien Minh Corp. sells a product for $5 per unit. The fixed expenses are $210,000 and the
unit variable expenses are 60% of the selling price. What sales would be necessary in order for
Thien Minh Corp. to realize a profit of 10% of sales?
A) $700,000 B) $525,000
C) $472,500 D) $420,000

26. Sales in Quoc Thai Company declined from $100,000 per year to $80,000 per year, while
net operating income declined by 300 percent. Given these data, the company must have had
an operating leverage of:
A) 15 B) 2.7
C) 30 D) 12

27. Dat Minh Company sells three products. Sales and contribution margin ratios for the three
products follow:
X Y Z
Sales in dollars ............................... $20,000 $40,000 $100,000
Contribution margin ratio ............... 45% 40% 15%
Given these data, the contribution margin ratio for the company as a whole would be:
A) 25% B) 75%
C) 33.3% D) it is impossible to determine from the given data

28. Hoang Phuc Company manufactures and sells two types of beach towels, standard and
deluxe. Hoang Phuc expects the following operating results next year for each type of towel:
Standard Deluxe
Sales ............................................... $450,000 $50,000
Variable expenses (total) ............... $360,000 $20,000
Hoang Phuc expects to have a total of $57,600 in fixed expenses next year. What is Hoang
Phuc's break-even point next year in sales dollars?
A) $72,000 B) $144,000

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 C) $192,000 D) $240,000

29. Tan Hoang, Inc. sells a product for $10 per unit. The variable expenses are $6 per unit, and
the fixed expenses total $35,000 per period. By how much will net operating income change if
sales are expected to increase by $40,000?
A) $16,000 increase B) $5,000 increase
C) $24,000 increase D) $11,000 decrease

30. Viet Phong Company has prepared the following budget data:
Sales .............................................................. 150,000 units
Selling price .................................................. $25 per unit
Variable expenses ......................................... $15 per unit
Fixed manufacturing expenses ..................... $800,000
Fixed selling and admin. expenses ............... $700,000
An advertising agency claims that an aggressive advertising campaign would enable the
company to increase its unit sales by 20%. What is the maximum amount that the company can
pay for advertising and obtain a net operating income of $200,000?
A) $100,000 B) $200,000
C) $300,000 D) $550,000

31. During last year, Phong Phu supplied hospitals with a comprehensive diagnostic kit for
$120. At a volume of 80,000 kits, Thor had fixed expenses of $1,000,000 and net operating
income of $200,000. Because of an adverse legal decision, Phong Phu's liability insurance
expenses this year will be $1,200,000 more than they were last year. Assuming that the volume
and other costs are unchanged, what should be the sales price this year if Thor is to make the
same $200,000 net operating income?
A) $120 B) $135
C) $150 D) $240

32. How much will a company's net operating income change if it undertakes an advertising
campaign given the following data:
Cost of advertising campaign ...................................... $25,000
Variable expense as a percentage of sales ................... 42%
Increase in sales ........................................................... $60,000
A) $200 increase B) $25,200 increase
C) $15,000 increase D) $9,800 increase

33. Vina Tech Company's tentative budget for next year is as follows:
Sales ........................................................... $600,000
Variable expenses ...................................... 360,000
Fixed expenses:
Manufacturing ........................................ 90,000
Selling and administrative ...................... 110,000
Net operating income ............................. $40,000
Mr. Quang, the marketing manager, has proposed an aggressive advertising campaign costing
an additional $50,000 that he predicts will result in a 30% unit sales increase. Assuming that
Quang's proposal is incorporated into the budget, what should be the increase in the budgeted
net operating income for next year?
A) $12,000 B) $22,000
C) $72,000 D) $130,000

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34. Last year, variable expenses were 60% of total sales and fixed expenses were 10% of total
sales. If the company increases its selling prices by 10%, but if fixed expenses, variable costs
per unit, and unit sales remain unchanged, the effect of the increase in selling price on the
company's total contribution margin would be:
A) a decrease of 2% B) an increase of 5%
C) an increase of 10% D) an increase of 25%

35. Hai Phong Corporation is a single-product company that expects the following operating
results for next year:
Sales ........................................................... $320,000
Contribution margin per unit ..................... $0.20
Contribution margin ratio .......................... 25%
Degree of operating leverage .................... 8
How many units would Hai Phong have to sell next year to break-even?
A) 50,000 B) 200,000
C) 280,000 D) 350,000

36. Tri Dat Company's selling price was $20.00 per unit. Fixed expenses totalled $54,000,
variable expenses were $14.00 per unit, and the company reported a profit of $9,000 for the
year. The break-even point for Tri Dat Company is:
A) 10,500 units B) 4,500 units
C) 8,500 units D) 9,000 units

37. Given the following data:

Selling price per unit ................................. $2.00
Variable production cost per unit .............. $0.30
Fixed production cost ................................ $3,000
Sales commission per unit ......................... $0.20
Fixed selling expenses ............................... $1,500
The break-even point in dollars is:
A) $6,000 B) $4,500
C) $2,647 D) $4,000

38. Truong Giang Company sells a single product for $20 per unit. The company's fixed
expenses total $240,000 per year, and variable expenses are $12 per unit of product. The
company's break-even point is:
A) $400,000 B) $600,000
C) 20,000 units D) 12,000 units

39. Minh Tri, Inc., sells a particular textbook for $20. Variable expenses are $14 per book. At
the current volume of 50,000 books sold per year the company is just breaking even. Given
these data, the annual fixed expenses associated with the textbook total:
A) $300,000 B) $1,000,000
C) $1,300,000 D) $700,000

40. Vietnamese Candy Cane Company is a single product firm with the following cost structure
for next year:
Selling price per unit ................................. $1.20
Variable expenses per unit ........................ $0.72

15
 Total fixed expenses for the year .............. $64,800
What is the company's break-even point next year in sales dollars?
A) $90,000 B) $108,000
C) $135,000 D) $162,000

41. Vina Thai Company manufacturers a single product that has a selling price of $20.00 per
unit. Fixed expenses total $45,000 per year, and the company must sell 5,000 units to break
even. If the company has a target profit of $13,500, sales in units must be:
A) 6,000 B) 5,750
C) 6,500 D) 7,925

42. Viet Phat Company expects to sell 60,000 units next year. Variable production costs are $4
per unit, and variable selling costs are 10% of the selling price. Fixed expenses are $115,000
per year, and the company has set a target profit of $50,000. Based on this information, the unit
selling price should be:
A) $7.00 B) $10.75
C) $7.50 D) $6.75

43. Company X sold 25,000 units of product last year. The contribution margin per unit was
$2, and fixed expenses totalled $40,000 for the year. This year fixed expenses are expected to
increase to $45,000, but the contribution margin per unit will remain unchanged at $2. How
many units must be sold this year to earn the same net operating income as was earned last
year:
A) 22,500 B) 27,500
C) 35,000 D) 2,500

44. A product sells for $10 per unit and has variable expenses of $6 per unit. Fixed expenses
total $45,000 per month. How many units of the product must be sold each month to yield a
monthly profit of $15,000?
A) 6,000 units B) 3,750 units
C) 15,000 units D) 10,000 units

45. Company A sells rodaks for $6.00 per unit. Fixed expenses total $37,500 per month and
variable expenses are $2.00 per unit. How many rodaks must be sold each month to realize a
profit before income taxes of 15% of sales (to the nearest whole unit):
A) 9,375 units B) 11,029 units
C) 12,097 units D) 9,740 units

46. Trieu Phong Corporation is a single product firm with the following cost formula for all of
its costs for next year: Y = $225,000 + $30X. Trieu Phong sells its product for $120 per unit.
What would Trieu Phong's total sales dollars have to be next year in order to generate $270,000
of net operating income?
A) $618,750 B) $660,000
C) $1,080,000 D) $1,980,000

47. Dat Thinh Company has sales of $120,000, a contribution margin of $48,000, and a net
operating income of $12,000. The company's degree of operating leverage is:
A) 2.5 B) 4.0
C) 10.0 D) 4.8

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48. Tri Dat Company reported the following data for its most recent year: sales, $500,000;
variable expenses, $300,000; and fixed expenses, $150,000. The company's degree of operating
leverage is:
A) 10 B) 2
C) 4 D) 2.5

49. TLI Enterprises has prepared the following budget for the month of July:
Selling Variable Unit
price cost per unit sales
Product A ............... $10.00 $4.00 15,000
Product B ............... $15.00 $8.00 20,000
Product C ............... $18.00 $9.00 5,000
Assuming that total fixed expenses will be $150,000 and the sales mix remains constant, the
break-even point would be closest to:
A) $276,008 B) $235,292
C) $294,545 D) $141,278

50. The unit contribution margins of Product X and Product Y are $10 and $9, respectively.
Total fixed expenses will be the same regardless of which product is produced and sold. Which
of the following statements will always be true?
A) Product X has a higher contribution margin ratio than Product Y.
B) if total sales are $300,000 no matter which product is sold, it is more profitable to
sell Product X than Product Y.
C) less units would be required to break even if only Product X is sold than if only
Product Y is sold.
D) responses A, B, and C are all correct.

51. A company sells two products: J and K. The sales mix is expected to be $3.00 of sales of
Product K for every $1.00 of sales of Product J. Product J has a contribution margin ratio of
40% whereas Product K has a contribution margin ratio of 50%. Annual fixed expenses are
expected to be $120,000. The overall break-even point for the company in dollar sales is
expected to be closest to:
A) $196,000 B) $200,000
C) $253,000 D) $255,000

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 SHORT-TERM DECISION MAKING (RELEVANT INFORMATION)

1. Minh currently works as the fry guy at company X but is thinking of quitting his job to attend
college full time next semester. Which of the following would be considered an opportunity
cost in this decision?
A) the cost of the textbooks
B) the cost of the cola that Minh will consume during class
C) Minh's lost wages at company X
D) both A and B above

2. Which of the following would be relevant in the decision to sell or throw out obsolete
inventory?
Direct material Fixed overhead
cost assigned cost assigned
to the inventory to the inventory
A) Yes Yes
B) Yes No
C) No Yes
D) No No

3. Hoang Dat Corp. is considering replacing an old machine with a new machine. Which of the
following items is relevant to Hoang Dat's decision? (Ignore income tax considerations.)
Book value Disposal value
of old machine of new machine
A) Yes No
B) No Yes
C) No No
D) Yes Yes

4. In a make-or-buy decision, relevant costs include:

A) unavoidable fixed costs
B) avoidable fixed costs
C) fixed factory (manufacturing) overhead costs applied to products
D) fixed selling and administrative expenses

5. When a multi-product factory operates at full capacity, decisions must be made about what
products to emphasize. In making such decisions, products should be ranked based on:
A) selling price per unit
B) contribution margin per unit
C) contribution margin per unit of the constraining resource
D) unit sales volume

6. Two or more products produced from a common input are called:

A) common costs. B) joint products.
C) joint costs. D) sunk costs.

7. Product X5 is one of the joint products in a joint manufacturing process. Management is

studying whether to sell X5 at the split-off point or to process X5 further into Xylene. The
following data have been gathered:
I. Selling price of X5

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 II. Variable cost of processing X5 into Xylene.
III. The avoidable fixed costs of processing X5 into Xylene.
IV. The selling price of Xylene.
V. The joint cost of the process from which X5 is produced.
Which of the above items are relevant in a decision of whether to sell the X5 as is or process it
further into Xylene?
A) I, II, and IV. B) I, II, III, and IV.
C) II, III, and V. D) I, II, III, and V.

8. Dat Inc. has some material that originally cost $73,500. The material has a scrap value of
$45,600 as is, but if reworked at a cost of $6,600, it could be sold for $58,100. What would be
the incremental effect on the company's overall profit of reworking and selling the material
rather than selling it as is as scrap?
A) -$22,000 B) -$67,600
C) $51,500 D) $5,900

9. ABC Corporation has in stock 35,800 kilograms of material L that it bought five years ago
for $5.55 per kilogram. This raw material was purchased to use in a product line that has been
discontinued. Material L can be sold as is for scrap for $1.67 per kilogram. An alternative
would be to use material L in one of the company's current products, Q08C, which currently
requires 2 kilograms of a raw material that is available for $9.15 per kilogram. Material L can
be modified at a cost of $0.78 per kilogram so that it can be used as a substitute for this material
in the production of product Q08C. However, after modification, 4 kilograms of material L is
required for every unit of product Q08C that is produced. ABC Corporation has now received
a request from a company that could use material L in its production process. Assuming that
ABC Corporation could use all of its stock of material L to make product Q08C or the company
could sell all of its stock of the material at the current scrap price of $1.67 per kilogram, what
is the minimum acceptable selling price of material L to the company that could use material
L in its own production process?
A) $5.36 B) $3.80
C) $2.13 D) $1.67

10. XYZ Inc. is considering using stocks of an old raw material in a special project. The special
project would require all 120 kilograms of the raw material that are in stock and that originally
cost the company $816 in total. If the company were to buy new supplies of this raw material
on the open market, it would cost $7.25 per kilogram. However, the company has no other use
for this raw material and would sell it at the discounted price of $6.75 per kilogram if it were
not used in the special project. The sale of the raw material would involve delivery to the
purchaser at a total cost of $50.00 for all 120 kilograms. What is the relevant cost of the 120
kilograms of the raw material when deciding whether to proceed with the special project?
A) $810 B) $870
C) $760 D) $816

11. Minh Phuong Corporation is preparing a bid for a special order that would require 880
litters of material R19S. The company already has 280 litters of this raw material in stock that
originally cost $6.20 per litter. Material R19S is used in the company's main product and is
replenished on a periodic basis. The resale value of the existing stock of the material is $5.45
per litter. New stocks of the material can be readily purchased for $6.20 per litter. What is the
relevant cost of the 880 litters of the raw material when deciding how much to bid on the special
order?

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 A) $5,006 B) $5,456
C) $4,796 D) $5,456

12. Minh Tri Company produces and sells 8,000 units of Product X each year. Each unit of
Product X sells for $10 and has a contribution margin of $6. It is estimated that if Product X is
discontinued, $50,000 of the $60,000 in fixed costs charged to Product X could be eliminated.
These data indicate that if Product X is discontinued, overall company net operating income
should:
A) increase by $2,000 per year B) decrease by $2,000 per year
C) increase by $38,000 per year D) decrease by $38,000 per year

13. The Pham Phong Company has two divisions – A and B. The divisions have the following
revenues and expenses:
A B
Sales .............................................................. $720,000 $350,000
Variable costs ............................................... 370,000 240,000
Traceable fixed costs .................................... 130,000 80,000
Allocated common corporate costs .............. 120,000 50,000
Net operating income (loss) ......................... $100,000 $ (20,000)
Management at Pham Phong is pondering the elimination of the B Division since it has shown
an operating loss for the past several years. If the B Division were eliminated, its traceable
fixed costs could be avoided. Total common corporate costs would be unaffected by this
decision. Given these data, the elimination of the B Division would result in an overall
company net operating income of:
A) $100,000 B) $80,000
C) $120,000 D) $50,000

14. The following information relates to next year's projected operating results of the
Aluminium Division of Tan Phong Corporation:
Contribution margin ...................... $1,500,000
Fixed expenses .............................. 1,700,000
Net operating loss .......................... $ (200,000)
If Aluminium Division is dropped, $1,000,000 of the above fixed costs would be eliminated.
What will be the effect on Wroclaw's profit next year if Aluminium Division is dropped instead
of being kept?
A) $500,000 decrease B) $800,000 increase
C) $1,000,000 increase D) $1,200,000 increase

15. VietTech Inc. is considering whether to continue to make a component or to buy it from an
outside supplier. The company uses 15,000 of the components each year. The unit product cost
of the component according to the company's absorption cost accounting system is given as
follows:
Direct materials ......................................... $ 7.90
Direct labour ................................................ 2.10
Variable manufacturing overhead ............. 1.10
Fixed manufacturing overhead .................. 4.00
Unit product cost ....................................... $15.10
Assume that direct labour is a variable cost. Of the fixed manufacturing overhead, 10% is
avoidable if the component were bought from the outside supplier; the remainder is not
avoidable. In addition, making the component uses 3 minutes on the machine that is the

20
company's current constraint. If the component were bought, this machine time would be freed
up for use on another product that requires 6 minutes on the constraining machine and that has
a contribution margin of $8.10 per unit. When deciding whether to make or buy the component,
what cost of making the component should be compared to the price of buying the component?
A) $15.55 B) $11.50
C) $19.15 D) $15.10

16. PNT Company budgeted sales of 400,000 calculators at $40 per unit last year. Variable
manufacturing costs were budgeted at $16 per unit, and fixed manufacturing costs at $10 per
unit. A special order for 40,000 calculators at $23 each was received by PNT in March. PNT
has sufficient plant capacity to manufacture the additional quantity without incurring any
additional fixed manufacturing costs; however, the production would have to be done on an
overtime basis at an estimated additional cost of $3 per calculator. Acceptance of the special
order would not affect PNT's normal sales and no selling expenses would be incurred. What
would be the effect on net operating income if the special order were accepted?
A) $120,000 decrease B) $160,000 increase
C) $240,000 decrease D) $280,000 increase

17. Lan Mai Company makes three products (X, Y, & Z) with the following characteristics:
X Y Z
Selling price per unit ..................... $10 $15 $20
Variable cost per unit .................... $6 $10 $10
Machine hours per unit .................. 2 4 10
The company has a capacity of 2,000 machine hours, but there is virtually unlimited demand
for each product. In order to maximize total contribution margin, how many units of each
product should the company produce?
A) 2,000 units of X, 500 units of Y, and 200 units of Z
B) 0 units of X, 0 units of Y, and 200 units of Z
C) 0 units of X, 500 units of Y, and 0 units of Z
D) 1,000 units of X, 0 units of Y, and 0 units of Z

18. Two products, LB and NH, emerge from a joint process. Product LB has been allocated
$30,800 of the total joint costs of $44,000. A total of 2,000 units of product LB are produced
from the joint process. Product LB can be sold at the split-off point for $13 per unit, or it can
be processed further for an additional total cost of $14,000 and then sold for $15 per unit. If
product LB is processed further and sold, what would be the effect on the overall profit of the
company compared with sale in its unprocessed form directly after the split-off point?
A) $16,000 more profit B) $20,800 more profit
C) $40,800 less profit D) $10,000 less profit

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