1. Which of the following formulas can often reconcile the difference between absorption- and variable-costing net income?

a. Change in inventory units x predetermined variable-overhead rate per unit.

b. Change in inventory units predetermined fixed-overhead rate per unit.

c. Change in inventory units predetermined variable-overhead rate per unit.

d. Change in inventory units x predetermined fixed-overhead rate per unit.

2. In an income statement prepared as an internal report using the direct costing method, fixed selling and administrative expenses would:

a. be inventoried

b. be used in the computation of operating income but not in the computation of the contribution margin

c. be used in the computation of the contribution margin

d. appear in the same section as variable selling and administrative expenses

3.The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as

a. solvency and profitability

b. solvency and leverage

c. solvency and liquidity

d. solvency and equity

4.Among the costs relevant to a make-or-buy decision, include variable manufacturing costs as well as

a. Plant depreciation

b. Unavoidable costs.

c. Avoidable fixed cost.

d. Real estate taxes

5.A general rule to use in assessing the average collection period is that

a. it should not greatly exceed the credit term period.

b. it should not greatly exceed the discount period.

c. it should not exceed 30 days.

d. it can be any length as long as the customer continues to buy merchandise.

6.If cash receipts from customers are greater than sales, which of the following is true?

a. The balance of accounts receivable will decrease

b. The company's outstanding debt will decrease

c. The company's cash will increase

d. The company will show a profit

7.A reason why absorption costing income statements are sometimes difficult for the manager to interpret is that:

a. They ignore inventory levels in computing income charges.

b. They omit variable expenses entirely in computing net operating income.

c. They shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.

d. They include all fixed manufacturing overhead on the income statement each year as a period cost.

8.When inventories increase from one period to the next and all other factors remain constant, income under direct costing:

a. leads to smaller federal income tax payments

b. cannot be accurately computed

c. will be smaller than under absorption costing

d. will be irrelevant for decision making

9.The term relevant range in accounting means the range over which

a. Costs may fluctuate

b. Production may vary

c. Relevant costs are incurred

d. Cost relationships are valid

10.The term relevant cost applies to all of the following decision situations except the

a. Replacement of equipment

b. Acceptance of special product order.

c. Determination of product price.

d. Manufacture of purchase of a component part.

11.After the level of volume exceeds the break-even point

a. total fixed costs per unit will remain constant.

b. the total contribution margin exceeds the total fixed costs.

c. the contribution margin ratio increases.

d. the total contribution margin will turn from negative to positive.

12.Absorption costing differs from variable costing in that

a. Companies using absorption costing have lower fixed costs

b. Standards can be used with absorption costing, but not with variable costing

c.Production influences income under absorption costing, but not under variable costing

d. Absorption costing inventories are more correctly valued

13.It is advantageous to coordinate one's company's budget with

a. Suppliers

b. Customers

c. The marketing and production departments

d.All of the above

14.The margin of safety is a key concept of CVP analysis. The margin of safety is the

a. difference between budgeted contribution margin and break-even contribution margin.

b. contribution margin rate.

c. difference between budgeted contribution margin and actual contribution margin.

d. difference between budgeted sales and break-even sales.

15.A fixed cost is relevant when it is

a. Sunk

b. Avoidable

c. A future cost

d. A product cost