1. Which of the following will affect the final indirect cost allocations (dollar amounts assigned to individual mission centers) in a step-down cost allocation? Choose all that apply.

A. Removal of a mission center from the step-down cost allocation process.

B. A change in the order of allocation of service (support) center costs.

C. An increase in mission center direct costs.

D. A change in the allocation basis (cost driver) for one or more service (support) center(s).

E. Addition of a service (support) center to the step-down cost allocation process.

2. Smith Pharmaceuticals is trying to estimate the accounting breakeven (revenue = full costs) volume of sales on a newly developed drug. Which of the following would be expected to reduce the number of pills Smith would need to sell to breakeven (i.e., which would result in a lower breakeven volume) assuming everything else remains the same? Choose only one answer.

A. An increase in avoidable fixed costs.

B. An increase in the variable cost component of a semi-fixed cost.

C. An increase in the direct variable cost per pill

D. An increase in the unit (per pill) contribution margin

E. An increase in allocated overhead (indirect) costs

3. Indicate whether the following statement is true or false.

"As output volume increases, fixed cost per unit remains constant while variable cost per unit increase

a. True

b. False

4. Which of the following statements best describes the contribution margin? Choose only one answer.

A. The total contribution margin is defined as the unit contribution margin multiplied by total costs.

B. The contribution margin is defined as fixed costs minus variable costs.

C. The contribution margin is the dollar amount of revenue net of variable costs that is available first to cover fixed costs and then to contribute to profit.

D. The contribution margin is defined as revenues minus fixed costs.

E. The total contribution margin is defined as the unit contribution margin multiplied by total revenues.

5. With respect to activity-based costing, which of the following statements is/are true? Choose all that apply.

A. Activity-based costing is a method used to assign overhead costs into products.

B. In activity-based costing, cost pools are generally defined as departments.

C. In activity-based costing, cost drivers should reflect activities or production processes that have a cause-and-effect relationship with the use of the resources in each cost pool.

D. Activity-based costing is most appropriate in organizations with low overhead costs and relatively homogeneous products and production processes.

E. In activity-based costing systems, costs may be assigned to activities at different levels within an organization (e.g., facility, product, batch, unit).

6. The concept of differential costs is useful in answering which of the following types of questions? Choose only one answer.

A. Add or drop a service

B. Expand or contract (reduce) a service

C. Make versus buy a product or service

D. All of the above

E. None of the above

7. Which of the following statements regarding differential cost accounting is most correct? Choose only one answer.

A. In a differential cost accounting analysis, fixed costs can ALWAYS be ignored.

B. Differential cost accounting focuses solely on classifying fixed versus variable costs.

C. Differential cost accounting is used primarily for long-term pricing decisions.

D. In differential cost accounting, a key factor in decision-making is understanding whether or not costs will change under different alternatives.

E. In an add/drop decision using differential cost accounting data, a negative net income (revenue minus all costs) ALWAYS means a product or service should NOT be expanded.

8. Smith Clinic has fixed costs of $1,000,000, a variable cost rate of $50 per visit, and expects to earn net revenue per visit of $100. If Smith Clinic wants to earn a profit of $200,000, how many visits must the clinic provide?

A. 20,000

B. 24,000

C. 12,000

D. 10,000

E. Cannot tell from the information provided

9. Which of the following statements best describes semi-variable costs?

A. Semi-variable costs have both a fixed and a variable component.

B. Total semi-variable costs per unit decline as output volume increases.

C. An electricity utility that includes both a fixed charge and a charge per kilowatt hour used is an example of a semi-variable cost.

D. All of the statements above correctly describe semi-variable costs.

E. Only statements A and C above correctly describe semi-variable costs.

10. Step-fixed (semi-fixed) costs behave similarly to fixed costs, but they are fixed over a smaller relevant range of volume than purely fixed costs.

A. True

B. False